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Parametric Technology Corporation (PMTC)

F4Q09 Results Call

October 27, 2009 08:36 AM ET

Executives:

Kristian Talvitie - Vice President of Corporate Communications

Richard Harrison - Chairman and Chief Exec. Officer

Cornelius F. Moses III - Chief Financial Officer and Exec. VP

Barry F. Cohen Ph.D. - Executive VP of Strategic Services & Partners

James E. Heppelmann - Pres, Chief Operating Officer, Director and Member of National FIRST Exec. Advisory Board

Analysts:

Yun Kim - Broadpoint AmTech

Ross MacMillan -- Jefferies & Co.

Greg Dunham - Deutsche Bank

Sterling Auty – JP Morgan

Richard Davis - Needham & Co.

Mike Olson - Piper Jaffray

Presentation:

Operator

Good morning ladies and gentlemen and welcome to PTC’s Fourth Quarter Fiscal Year 2009 Results conference call. (Operator Instructions). I would now like to introduce Kristian Talvitie PTC’s Vice President of Corporate Communications. Please go ahead.

Kristian Talvitie

Thanks everyone and good morning. Before we get started I would like to take a couple of minutes and read the Safe Harbor statements.

This conference call and webcast may include forward-looking statements regarding PTC’s future operations, prospects, expected financial performance or products. Any such statements will be based on current assumptions of PTC’s management and are subject to risks and uncertainties that could cause actual events and results to differ materially.

Information concerning these risks and uncertainties is contained in PTC’s Form 8-K filed yesterday and in it’s most recent Forms 10-Q and Form 10-K on file with the SEC. PTC will us non-GAAP measures to describe it’s results of operations and expected future financial performance.

A reconciliation between the non-GAAP measure and the comparable GAAP measures is located in the financial and operating metrics document on the investor relations of our website at www.ptc.com.

Also before we get started, we have some brief comments from Dick and getting into Q&A, a quick housekeeping message that we are hosting our 2010 Investor Day next Tuesday, November 3rd in New York City. Please feel free to contact me with any questions or to RSVP for that event.

With that I will turn the call over to Dick Harrison.

Richard Harrison

Okay, thanks Kristian. Just a couple of points I will may be make before we turn it up to Q&A and I really won't dwell on them here in the intro. But we have consistently said and felt like that we have a huge market opportunity here helping manufacturing companies in a changing world build better products, collaborate with their supply chain, control the engineering building materials and so forth.

It’s a maturing market. I think its one that PTC and its competitors have built better solutions for and better service deployments for over the years. And so I think the market is maturing and there is a lot of upside there.

In addition to that, there are some changing dynamics within the market from a competitive standpoint and we think that it's going to result in some good upside for PTC over the next few years.

We feel like we have a technology leadership position. We feel like that accounts that we won in the dominoes and not only the dominoes, but the whole group of other replacement accounts are manifestation of that technology leadership and we will talk more about that.

And then finally, we are committed to 20% EPS growth on a sustainable basis over the next five years at least, driven primarily by revenue growth. And I think that revenue growth is going to come from the competitive advantage that we have particularly in the data management aspects of the whole PLM business.

So with that as the intro, why don’t we open it up for Q&A?

Question-and-Answer Session

Operator

Your first question comes from Yun Kim - Broadpoint AmTech.

Yun Kim - Broadpoint AmTech

I just wanted to ask you guys about the overall state of your channel business. Obviously that's probably the one area where there continues to be some weakness. Is it bad enough that we have to start worrying about some vendor viability issue within the channels, if the weakness persists for a while?

And then also, if you could just talk about the overall state of your channel business today and then in terms of your margin guidance for fiscal year ‘10 does that assume no meaningful rebound in the channel business?

Cornelius Moses III

Yun, that was a three-part question. This is Neil. First of all, the channel business was challenging for us in the fourth quarter and it was probably down about 25% year-over-year.

The channel business actually performed better than the direct business for the first half of the year, and then worse than the direct business in the second half of the year. Overall during the course of the year they performed pretty comparably.

As far as your question about whether we're worried about viability of channel partners, the answer is no. I think that we've got some pretty good relationships there.

We haven't seen any bad debt issues arise with channel partners around the world of any significance this year, despite the fact it's been very challenging from a macro economic perspective.

I would say that probably the channel is going to recover is evident by our fourth quarter, a little bit more slowly than we're seeing on the direct side. We would expect that that recovery would be in the second half of our next fiscal year.

Yun Kim - Broadpoint AmTech

Okay and then for second half of fiscal year '10 right?

Cornelius Moses III

That's correct.

Yun Kim - Broadpoint AmTech

And then quick question on consulting business. is Barry there?

Barry Cohen

Yes.

Yun Kim - Broadpoint AmTech

If I try to reconcile the guidance for Q1 and for the year on the consulting side of the business, it implies that there will be pretty significant acceleration in that business in second half.

Is this something that is already planned and in the pipeline or is it something that is driven by improving environment and in a more deal closures in the first half of the year?

Barry Cohen

I think it's built into the plan already. I think what we saw in Q4 is an up tick in our bookings particularly in North America and China.

So we are beginning to get much more confident, what we saw in the second half of 2009, really was a decline in that bookings and the bookings, the upfront part of the plan it accelerate the plan. So we are very confident that we will see that second half up tick.

Operator

You next question comes from Ross MacMillan – Jefferies.

Ross MacMillan -- Jefferies & Co.

Thanks, Neil, if I would take your cost guidance, you guided for I think 210 to 215 for Q1 and then you said fiscal year '10 would be 835.

So, I guess the way I'm looking at this is, if I annualized the Q1 guidance, you actually come up to a number which is above that 835, which would imply that the Q1 run rate, cost rate was the highest of all quarters in the year.

Can you kind of help me reconcile that, because normally I guess we'd expect Q1 cost to be maybe lower than cost later in the year? Thanks.

Cornelius Moses III

Ross, our cost in our plan, our expenses in our plan are relatively comparable by quarter in our fiscal year '10 plan. So you should see somewhere in the range of $210 millionish throughout the year. It's fairly comparable, maybe a little bit less in certain quarters, but basically it's in that range.

Ross MacMillan -- Jefferies & Co.

Have the cost implications of the, as further adjustment to headcount you did in the fiscal fourth quarter, we still got to see a little bit more of that flow through, in other words did we get a full quarter benefit in Q4 or will we see more of that benefit in Q1?

Richard Harrison

Basically all that activity had taken place by the end of September. So we should see a full benefit starting out really in Q1 of this year and continuing throughout the year.

Ross MacMillan - Jefferies & Co.

Great, and then just on – you obviously had a better close rate on the larger deals in Q4 than you had proportionately for the prior three quarters. And I know that North America, Windchill, you highlighted that.

Was there a tangible difference in terms of customers in North America, willingness to sign and how do you then translate that into how that might flow through into other territories, other regions through fiscal ’10?

Is it true you are guiding to 20% license growth, which I guess implies that we are going to see further improvements as we go through the next few quarters?

Richard Harrison

So Ross, I think that what we said a little bit at the last call as well is that if we look at the pipeline and take the pulse of the sales people, there is one more mention in the U.S in terms of the recovery that might be happening.

And we do feel like the economy has gotten better than it was in the beginning of the year. And so we definitely see it first in the U.S where the pipeline is stronger and the sales teams are just more aggressive right now about their deals and their forecasts. I think historically that will move around the globe.

We feel like actually in China, the pipeline is pretty strong and there is more confidence in it as the sales people do their forecasts. Europe is still a little bit lagging, although it feels better.

And so I think in the context of all of that, we feel pretty good about it. Generally that trend would normally start to flow into some of the other geographies, the question is when, is it one quarter, two or three?

Just to answer that Ross, I think we’re going to see the recovery in “waves” both geographically and by line of business. So geographically, as Dick said, North America is starting out, China maybe is right behind there, in Europe and rest of Asia will probably follow.

By line of business, certainly we’re seeing the pick up, on a relative basis, in license revenue today primarily in North America. Probably both the service and maintenance businesses, recovery is going to lag that by a quarter or two.

Ross MacMillan - Jefferies & Co.

Just any implications from Dassault's yesterday to kind of buy out their PLM sales force, any implications for Parametric?

Richard Harrison

That’s definitely good question. I think we’re going to learn more about that in the coming quarters. I think it's something that we've talked for a few years here on these calls that we sort of saw happening eventually.

I think we need to learn more about the detail of it. And I think that will come in the next couple of quarters. But I think at a simple level Ross it's going to level the playing field. And so SAP, Siemens, PTC and Dassault will now compete on an equal playing field.

I think Dassault had the advantage of IBM, which is a great partner. And they’re no longer going to have that, so I think it's going to make our job of talking about our benefits with customers easier when we don't have to overcome the presence of the IBM company and their footprints in all of these large accounts. So it's, I think it's positive news for the market.

Operator

Our next question comes from Greg Dunham -Deutsche Bank.

Greg Dunham - Deutsche Bank

I wanted to actually follow up on the comments of the recovery in ways, first by geography and then by revenue line. Is there any color you could provide on a product line basis in terms of, I know that Windchill is actually performing better now, but I also wanted you to give me some color on the MCAD business, particularly the large enterprise and small enterprise and when do you expect that business to really start to improve?

Cornelius Moses III

Well, Greg it's Neil. It's a good question certainly we are seeing that the recovery first with Windchill. I think that's for two reasons, one is the technology advantage is most clear there. I think that's part of it.

And the second part of it is on the larger transactions that tend to take place, they tend to be Windchill driven transactions and we did see a pick up in those transactions in this quarter and hopefully we'll continue to do so.

In terms of the MCAD business I would say the same thing there, which is a fair amount of the MCAD business is driven by our channel. I think we said that we thought that the recovery for the channel it would be probably in the second half of fiscal '10.

And on the large enterprise MCAD business I think that will lag Windchill somewhat as well, although I think we'll see a recovery there in the second half of fiscal '10 as well.

Greg Dunham - Deutsche Bank

That helps and then final question on in terms of investment for channel support, you answered that question on vendor viability.

But what about investment for marketing support? I mean do you plan on increasing the investment fill in that business?

Cornelius Moses III

We do, we have specific funds earmarked for our 2010 plan to invest in support of our channel partners around the world, predominantly around marketing.

Operator

Your next question comes from Sterling Auty - JP Morgan.

Sterling Auty – JP Morgan

Neil, a quarter or so ago you did a nice job in terms of describing in kind of grid format the revenue by direct sales versus channel and kind of new products versus maintenance, so specifically to the channel, can you talk to us about – so its down slightly sequentiall,what were the aspects that had pressured the results in the channel, was it new business? Was it MCAD versus PLM etcetera?

Cornelius Moses III

Well sure, I think your talking about when you say grid, I think your talking about what we affectionately refer to as the full box.

Sterling Auty – JP Morgan

Exactly.

Cornelius Moses III

If we talk about the full box and the bottom two boxes which is basically our SMB business either in CAD or PLM. The best performing business for PTC this year in that full box was the lower right hand quadrant, which is SMB and PLM. That was better than the two top boxes as well and it was significantly better than the bottom left box.

So we’ve seen in channel what some of our competitors have seen there, maybe Autodesk would be a good example, which is the low-end MCAD business has been impacted relatively significantly by the macro-economic environment.

So that business, which has been very very strong for PTC over the last five years, you know kind of a 15% cater annually from a revenue perspective before this year. We certainly had a difficult year this year. But as I said, as the economy begins to recover, we think that business will begin to recover as well.

Sterling Auty – JP Morgan

Okay. And then on the expense side, can you talk to us in terms of --so we've got the expense guidance for next year, but what's the plan for head count within that?

Should we think the head count will be held mainly flat for the year or is there going to be a mix to more lower cost geographies, so head count could actually increase? How should we think about head count in the context of the expense plan?

Sterling Auty – JP Morgan

Yes head count will increase slightly. Not a lot, probably 2% to 3% over the course of the year. Most of that increase, if not all of it will be driven by continued shift to low cost geographies.

PTC’s head count today, 36% of the head count is in low cost geographies compared to about 20% two years ago. So we’re moving towards that 40% number. We’re almost there and there'll be a continued shift in that direction over the course of the next 12 months.

Operator

Your next question from Richard Davis – Needham & Co.

Richard Davis - Needham & Co.

So we picked up some positive commentary on Arbortext and so could you just – I mean I know it’s small relative to some of the other parts of your business, but has there been any change either in product or has just been time that your customers have finally hey we need technical documentation.

But it was just – we weren’t expecting that and people were positive about that. So could you help me out? Thoughts on that?

James Heppelmann

Yes, this is Jim. I’ll take a shot at that. I think there is a couple of different factors that are sort of occurring simultaneous. And let me first say for everybody’s benefit. Arbortext is probably our third large product line behind Pro/ENGINEER and Windchill.

So it is important and it kindles the needle. But I think that there are two things that happen, one is the time factor. It takes a while to get this kind of technology into the PTC ecosystem and begin the campaigns and sort of move through the process.

And I think we are now in a good spot where there is quite a healthy pipeline of Arbortext business out there to go close and develop in the coming quarters and years here.

Second thing is, we have sort of opted the anti on the strategy of that and we began to sort of paint the picture of the next generation of, what we would call a service information system so that Arbortext isn’t the way to just create documentation efficiently, is actually a vision where the documentation goes away and this is a real time business system for an after market service department.

And I think that’s pretty compelling and that’s caused a few new customer ,major ones to sit up and take notice and in fact, I think we closed probably the largest order that PTC closed with our (inaudible) to acquire the company really from a customer who liked the current product but really was sold on where we are going the vision of the service information system.

So I think it's really both the time factor and some extra juice added by us continuing to push the concept and push the vision of what's possible.

Operator

(Operator Instruction) Your next question comes from Mike Olson - Piper Jaffray.

Mike Olson - Piper Jaffray

In the script you mentioned success in product points and we can see product point wins are improving sequentially every quarter.

Just from a high level, why is product point working, I guess what you think is kind of resonating with customers that’s causing product point wins to exceed expectations?

Jim Heppelmann

There is one simple answer to that is share point. So product point is a share point made of, its part of Windchill suit but it’s a way for small customers and in some cases large customers to get on the Windchill roadmap by deploying a piece of technology on top of share point that helps them get a lot more value out of share point and sort of becomes an on ramp to ultimately a bigger relationship with PTC, in a broader field and solution. But Microsoft is putting incredible energy into SharePoint.

They are having incredible success with SharePoint and I think we did a very wise thing by being first to market with a solution that harnesses some of that energy to PTC’s benefit.

Mike Olson - Piper Jaffray

Okay, and then when you talk about the 20% EPS growth goal, based on revenue growth, I realize it's hard to predict what the acquisition pipeline is going to look like.

But how much of that you envision being organic and how much do you think could be from acquisition?

James Heppelmann

Yes this is Jim. Let me step in and head Neil off here. We have the organic growth strategy. My view and I’m joshing a bit with Neil here is that we don’t have an acquisition strategy per say. We have a strategy to grow organically. We have the means to grow organically.

We may make acquisitions, particularly the kind of technology cut-ins we have been doing, which fundamentally show up down the road as organic growth.

But we don’t have a pre-determined goal to acquire half of that growth or something like that. I would say our pre-determined goal if there is one is to acquire none of it to grow it all organically.

But we will keep that acquisition up and option open when we find a special piece of technology or if some situation presents itself that's too good to pass up for one reason or another.

Neil, you just want to add to that?

Cornelius Moses III

I couldn’t have said it better myself Jim.

James Heppelmann

Good.

Cornelius Moses III

Where are you Jim?

James Heppelmann

I am in Europe

Operator

Your next question comes from Steve [Henig] (inaudible).

James Heppelmann

I am with an important European customer Dick.

Unidentified Analyst

Just one question and one follow up here. The first question is about the sales organization starting in fiscal ’10. Any sort of reorganization to be expected, how is the organization looking with respect to the transition to named account reps versus territory or is that all done, et cetera?

Richard Harrison

I think the sales organization, there is no major change in the sales organization. We did expand the person who heads up Europe. We expanded his responsibility and gave him Asia-Pac as well. So there is one Vice President for international sales reporting up to the corporate sales VP.

But fundamentally there is no change in the organization for sales. I think that transition to the named accounts and so forth is done. It has been done for a good year or more and I think it’s working pretty well for us and one of the things that’s hard to describe and sort of quantify is the level of confidence that the sales force has right now.

These domino wins and behind them are much, much larger list of displacement deals, has the sales force particularly confident. And that’s first in the U.S, and I think that as these opportunities and these deals come out and they spread inside our sales force, that level of confidence gets inspired and spreads as well. So the sales force, I think turnover last year in the sales force I would actually say was too low. I think it was 3%, 2% or 3%.

We’re not that good at hiring actually but the sales people really feel like they're winning and they can make some money and build a career here. So sales is running really well and I think it’s linked nicely to the fact that the products have sort of come out, particularly on the Windchill side, with a distinct competitive advantage and the service deployments are increasingly good and so forth. So it is pretty good in the sales force right now.

Unidentified Analyst

Okay thanks Dick. And then one follow up would be, you haven’t talked a lot about the new product initiatives in this release other than the Windchill, SharePoint work which has been in progress for a while.

Can you address any potential upside from new product initiatives that we may hear about shortly or do we have to wait for all that until next week of the investor day?

James Heppelmann

This is Jim. I mean we will certainly give you a lot of color next week at the Investor Day. But I think just a preview, at least at a headline level, what you might hear, in addition to some interesting new developments around Pro/ENGINEER, I just want to throw that out there.

There is an interesting development to bring some of the explicit modeling technology of CoCreate into the Pro/ENGINEER product, which will give some Pro/ENGINEER customers and prospects pretty excited. That will be unique and compelling.

I think what you are really going to hear a story about is pushing forward aggressively with Windchill. We have sort of – you could these Windchill or you could call them adjacent to Windchill but we are building a solution for embedded software development.

Our customers are developing mechanical products that increasingly contain circuit boards that increasingly contain software and we need to treat the mechanical, the electronics and software sort of as equals.

We are coming to market with a sort of what we would call an ALM, inside PLM strategy. Application Life Cycle Management, which is sort of what, you hear the standalone software vendors are talking about.

But we are doing that inside PLM. So an ALM solution that dovetails into a PLM solution and really helps you manage the software in the context of managing the product that the software is embedded in.

You are going to hear a lot more about the SharePoint story. I mean, when we have been talking about SharePoint, we have been talking a lot about ProductPoint. It turns out that that’s one of four projects we have going right now with SharePoint and a couple of the other ones are even bigger. So maybe you could say balanced ProductPoint is 25% of our SharePoint strategy.

So you're going to hear us articulate the new product, a PPM product, Product Portfolio Management as it is called. And then we’re going to articulate a better story around what we mean by social product development, how to use sort of social networking in product development.

Thanks to the technologies in SharePoint, particularly SharePoint 2010. And then you're going to hear us tell a broader story around this concept we call product analytic, which is a new product suite we’re building around some of the acquired technology of the Synopsis acquisition of about a year ago and the Relex acquisition of earlier this summer.

So you're going to hear us basically talk about advancing Pro/E and Windchill and sort of launching three significant adjacent products, again embedded software, a SharePoint suite and a product analytics suite sort of next to them, things that we can just attach on to the footprint in existing accounts and use this as a way to get in the door and brand new accounts.

Operator

Our next question comes from Rob (inaudible) - Goldman Sachs.

Unidentified Analyst

I was hoping you could help us understand a little bit more about how the domino accounts are sort of hitting revenues or if there is sort of a six months lag before from win to revenue recognition or something? Maybe you could help us understand that better Neil?

James Heppelmann

Neil, it’s Jim can I take a stab at that one?

Cornelius Moses III

Yes.

James Heppelmann

So let me say that, that’s going to be a major subject next week at our analyst’s day too, because we know it’s a question of how and when does PTC monetize these dominos. But let me first say, you see us, Dick especially, but all the rest of us get very excited about these domino wins.

And I think as investors, you are sometimes scratching your heads saying, “I don’t get it. Why are you so excited?” So let me first say, the number one reason fundamentally is because today’s domino becomes tomorrows annuity.

And I am going to come back and give you a kind of a high-level view of how that happens over time and we will give you, actually some examples next week. But you should think that today’s domino is tomorrow’s annuity.

But beyond that, every domino win by our definition is basically a big strategic win and at an away game. This is a big strategic win where PTC had no first right of refusal. That was not our customer or we weren’t the dominant provider, if we were there at all.

So, we are excited because it says that there is a big technology gap that the gap is big enough that it's worth switching vendors and in most cases switching products. And it takes a big gap, because nobody likes to switch, until or unless the gap is big enough that the system you thought was supposed to be helping you in our view is hurting you.

So that’s exciting. The second thing, each domino win in turn influences so many other sales campaigns. I can't tell you how many deals entered our pipeline on the back of the ABS wins. Everybody said, “If PTC can win, in that fairly hardcore environment, European company, co-ownership with the Dassault family, all that stuff. Then PTC must have something special, I better take a look at it.”

And then the final thing I would say is, to me it begins to open the discussion of a replacement market. The growth opportunity for Windchill is so much larger. If in addition to winning green field new business, we can sort of displace vendors in brown field old business, it really makes the market probably three times larger.

So anyway, we are excited because it's annuity, it makes the market so much larger, it influences so many other deals and it really reinforces the point that the gap is real and it’s big.

Unidentified Analyst

You did a much better job than Neil would have done, thanks Jim.

Cornelius Moses III

That’s true, but I feel compelled to add something to that. We did actually monetize some of the domino accounts this past year. The average domino account wins for PTC brought us between $3 and $4 million of revenue for those seven accounts that we've talked about.

But the opportunity to Jim’s point is, at least triple that opportunity we believe, a) in a better economy and b) with the customer not just making an initial investment, but rolling out the technology on a broad basis across the enterprise. So I'm looking forward to that type of annuity that can be significantly more than the initial win opportunity was in 2009.

James Heppelmann

Yes. Neil, it’s Jim, thanks for bringing that up today, I had actually meant to talk a little bit about our monetization model over time. But you should think that when we look at a domino account, there is sort of a business case development phase then a competition phase, then a pilot phase, then a suite rollout phase. And then finally, a long-term footprint expansion phase.

So, I think when we declare, we’ve added a new domino, it generally means the competition phase is over and we've won and we’re at the pilot phase. Now the pilot phase is not a huge revenue contributor.

I think that’s the basis for the disconnect sometimes. You get these domino into PTC and we don’t see a big spike in revenue. But the spike in revenue actually comes in year two and then year three and again in year four and again in year five and so forth.

One thing Kristian, we should talk about this at the day next week, but we want to start breaking down big deals for you guys. So, you understand the difference between a big deal and a big annuity, because I think sometimes you see big deals as risky and I suppose the new wins are in terms of being able to predict when exactly they will happen and so forth, but a lot of those big deals are the same customers quarter-after-quarter, just buying in the next round.

And in fact, that’s a fairly low-risk proposition, fairly predictable proposition and it's really this annuity. So, I am just saying, let's not confuse a big win with a big customer, with a big relationship. In a lot of our deals, that we call big deals are in fact big customer relationships, not big wins. So, we will try to break it down and give you some visibility to what's what.

Operator

Your final question comes from Sterling Auty - J.P. Morgan.

Sterling Auty - J.P. Morgan

Yes thanks. I want to follow up on Rob’s domino question and Jim some of the comments that are on the visibility into it. Given the time, a year we are in and customers are going through their budgetary process, has it given you any indication in terms of how their budgeting for that next phase of investment as these domino deals?

James Heppelmann

Yes, I would say and you guys feel free to jump in here, with each of these domino wins, we are generally talking about a three to five-year program with an ongoing service engagement quarter-after-quarter.

A license buy at this point and another license buy at that point. And then after that, we are going to have to sell them on the footprint expansion, but yes, I would say, when we are talking to these guys, we are not talking about a pilot project order, because that’s not really that exciting, that’s just a phase we have to get through to get to the excitement.

But definitely, they are budgeting typically a three to five-year program and we are forecasting a three to five year program.

Sterling Auty - J.P. Morgan

Can you talk to us a little bit by vertical industry? We talked about the PLM versus the MCAD, but if you take a step up and look at the vertical industry, which industry do you see particular improvement in and in the quarter and where are the ones that are still might be lagging?

Cornelius Moses III

Sure, I’ll take a crack at that. Aerospace and defense has continued to hold up pretty well for us. Obviously, our other two major verticals are industrial, which where we have seen signs of improvement. And I would say the hi-tech and electronics business is a business that is probably still the most challenging of our three major verticals.

If we go beyond that, we certainly would say that the automotive vertical, which for us is between 10% and 15% of revenues, so not as significant, is still challenging as is consumer products. The last vertical we compete in, medical devices has done quite well.

Sterling Auty - J.P. Morgan

Neil, wouldn’t you say from a domino perspective, and it’s shown actually in that table we provided you, that Kristian provided in the commentary, from a domino perspective it’s quite well diversified across the different verticals.

Cornelius Moses III

Yes, it absolutely is. I didn’t realize the question was domino related, but it is diversified across all verticals. I think we had two in industrial and one in every other vertical.

And again, I think it speaks to our excitement. Not that we can only win in automative and aerospace and defense. I mean we’re able to win all these accounts in pretty much each and every vertical right now.

Jim Heppelmann

Yes and again, not the labor, but behind the dominos, the 15 or 20 targeted dominos, there are right now close to 300 active displacement campaigns in other accounts, many of which are large and could be larger than what we've characterized as a domino. So, there is a big pipeline of deal activity under there that does compel our excitement.

Yes, we had a really major – what we haven’t talked about, I don’t know if you want to do it now or next week at the meeting, but we had a major win in a domino account this last quarter that resulted in a nice order, not a huge order, but it was a good order in terms of an initial one, around a heavily sort of debated and benchmarked campaign.

We were not incumbent at all in this account. It's one of the largest industrial accounts in the world. It's a major $25 billion division of this major industrial account. Siemens, which is a good, strong competitor was the incumbent in the CAD area, was the incumbent in the data management area for the engineering department for managing the CAD files as well as Team Center was installed in the engineering department as well as the enterprise.

And then Dassault had a deployment in the account of Matrix in the enterprise as well, that was the incumbent environment. We had a very small footprint, because the company had acquired a company that had Pro/ENGINEER two years ago, I think we had 20 seats or something. And somehow, we wedged our way into the evaluation into the benchmark that took place over the last year.

And in September, the company did place an initial order to replace all of the CAD seats and standardized the entire thing around Pro/ENGINEER. All of those seats will be managed by Windchill and we have an opportunity to expand that out of the enterprise as we go forward as part of the pilot. But that’s a major, major company, which we will talk more about, how do we win that deal. How do we win those deals today?

That’s why, the sales force is excited. Those deals spill over to other sales people and give them more and more confidence to go out and attack not only in our install base where we have an opportunity, but to go out after these new sort of Greenfield accounts where we are doing displacements. But this was a very sophisticated highly innovative prestigious account where we had non-incumbency.

Now you would have thought that Siemens would have come and one with their incumbent position with Teamcenter unified and an X which they didn’t win. You would have thought that the cell would have just built on their V6 CATIA modeler on to the matrix deployment, which they couldn’t demonstrate.

So it’s a major win for a lot of reasons and it gives us a lot of confidence as we go forward around the commitments that we have few around earnings growth really for the foreseeable future that predicated on revenue growth.

And I think there were aspects of this kind of win that lead to the change in the dynamic with IBM and Dassault as well. We'll talk more about these. There are more deals like that we will describe next week as well.

Operator

At this time I will now turn the call back over to the speakers.

Richard Harrison

Okay. Thanks again for the time today and we look forward again to getting together in the January timeframe. There is a lot of we can see at next week and then talking about the Q1 results. Q1 is going to be an interesting quarter.

We don’t know yet what's really happening in the economy and I don’t think anybody does. It's actually a very nice pipeline and it's just hard for us to predict how fast those wins might come. But we will talk more about it next week. Thanks again.

Operator

Thank you for participating for today's conference. We thank you for your participation. At this time you may disconnect your lines.

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Source: Parametric Technology Corporation Q4 Results Call Transcript
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