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Executives

Jim Heppelmann – Chief Executive Officer

Tim Fox – Investor Relations

Analysts

Sterling Auty – JP Morgan

Parametric Technology Corporation (PMTC) JP Morgan TMT Conference Transcript May 17, 2012 9:50 AM ET

Sterling Auty – JP Morgan

Thanks, everyone for joining us. My name is Sterling Auty. I'm the software technology analyst with JP Morgan. Happy to have with us Jim Heppelmann who is Chief Executive Officer of Parametric Technology. I'm going to turn the mic over Tim Fox briefly to do safe harbor, then over to Jim just to do couple of brief overview comments. And we're going to jump right into fireside chat Q&A. With that, Tim.

Tim Fox

So today's presentation is and Q&A session contains forward-looking statements regarding future products, or anticipated future operations or financial performance any such statements will be based on current assumptions of PTC's management and are subject or 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 on April 25th and the most recent Form 10-K and 10-Q.

Sterling Auty – JP Morgan

Let me see that, we're having a little microphone trouble bottom one.

Tim Fox

Just the top there.

Sterling Auty – JP Morgan

Just that today's presentation's Q&A session may include forward-looking statements regarding PTC's products or anticipated future operations or financial performance. Any such statements will be based on the 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 or uncertainties is contained in PTC's Form 8-K filed on April 25th 2012, most recent Form 10-K and Form 10-Q on file with the SEC with that, Jim.

Jim Heppelmann

Good, thank you. Thanks, Sterling. Good to have the opportunity to participate in the fireside chat here today. There's lot to talk about. I just want to provide a kind of quick backdrop to what leads us to the topic or issues of the day today.

PTC had a pretty good year last year, we came off year of 16% growth and 26% earnings growth and we're headed into a pretty strong year this year as well. In February of this year, we actually had an analyst day and upgraded or lifted our long-term outlook.

We had had a plan out there for 2014 or let's say a goal for 2014 and we raised the goal and basically set our new goal because we're actually ahead of plan on the 2014 goal and planning to meet some of those metrics already in 2012.

We set a new goal for 2015, which was to have between now and then 11% to 13% revenue growth CAGR to increase our operating margins from the 20% or so that they are this year, or that they will be this year to 25% to 27% and that would drive our earnings per share up, considerably from where they are today.

So that would say – let me say in 2012 our current guidance is about $1.280 billion to $1.282 billion, our margin guidance is about 20% and our EPS guidance is a little under $1.50 but that says in 2015 we would be more like at the middle of that range $1.8 billion 26% operating margins and $3 a share.

So it's an interesting plan and that certainly got a lot of shareholder interest. Then we proceeded unfortunately to post rather a weak quarter in the March ending quarter. We missed particularly on the license revenue.

There were several large transactions that we had forecasted to close that did not close the largest of which kind of made the difference between performance in the middle of our guidance range and missing the guidance range. That was a large European transaction that was interrupted by the company we were transacting with being acquired by somebody else late in the process and the transaction just being blocked on principal related the acquisition.

So that was a disappointing quarter, but inside that license revenue disappointment we actually made pretty good progress against the other elements particularly the margin expansion. So we posted a decent earnings quarter, better than people expected based on the license [mix] and the profit contained in the license.

So, it was by some measures a good quarter showing our commitment to and the progress we're making on margin expansion and then of course a disappointment on the license revenue line and we took down our guidance for the back half of the year commensurate with that.

Sterling Auty – JP Morgan

Hi, good, all right. So let's jump in peel back a layer or two on a couple of those issues. Let's start with actually North America. I think you gave people a sense that you felt that it was more your own execution than something else happening in the macro world. Since you reported, ANSYS put up a quarter that showed decelerating growth as well. Now that you're kind of looking back, how do you feel about that? Do you still think that there's enough opportunities out there that it was more execution rather than macro that was impacting North America?

Jim Heppelmann

Yeah. I mean in North America what I said in the earnings call and this was a pre-analyst call, right, I didn't at that point have the benefit of understanding how others did? What we said is that there were – let's see five transactions we expected to close in North America, not huge transactions like the one in Europe. But five that I would have expected to close that didn't.

But I said there wasn't a simple answer as to why those five didn't close. There was another one involved in acquisition story. There were several of them that – there were situations where deals came in but let's say it's half the size that was forecasted because the customer said let's phase this out over time. And then there was a defense government -- defense related transaction that had its funding hijacked by another program at the last minute.

So, I said that feels more like a PTC problem, forecasting versus actuals was our forecast wrong, our performance not it just felt like an internal problem. You can with the benefit of hindsight, say maybe the fact that this deals came in smaller was a bit of conservatism but they did come in as it relates to those deals. The defense – government defense order that had it's – it's funding hijacked, certainly, we all know that there's a macro situation there so that's not a surprise to anybody.

But, I think it's some element of our business in North America is a little bit softer let's say than we had expected it to be. Our business in Europe on the other hand aside from the big deal, we otherwise over-performed versus our forecast.

So our business in Europe continues to be surprisingly strong. I think that concerns some people when is it going to catch up with the headlines, but I think we've come to realize that the bulk of our business comes from Germany and the Nordics, Germany first, the Nordics second, France third, UK forth, and by that time you get down the southern Europe it's – it's pretty much not that meaningful in terms of the revenue contribution.

So I feel like the German industrial companies that are typically our customers are doing pretty well as of the Nordic companies where they have competitive strength let's say and the business held up pretty well.

Sterling Auty – JP Morgan

How much – zeroing in to North America again? How much when you look at that maybe was -- could have done a better job in scrubbing the pipeline the forecasting. What since done to try to derisk the forecast going forward?

Jim Heppelmann

Let me say we've been taking for a while about, I'm relatively new CEO six quarters into it. One of the programs I started when I first became CEO was to put in place a modern day CRM system and process because PTC really does not have a good sales forecasting and pipeline management process. We're still in the mode of using spreadsheets and phone calls to rollup forecast for a pretty large distributed worldwide sales force.

So we put in place a program to implement this, trying to avoid what actually happened last quarter that we get caught in a bind where the pipeline and forecast end up different than each other. Let's see the forecast and actuals end up different than each other. The good news is this system just went live this week, for PTC in Boston here, the bad news is it didn't show up in time to make a difference for last quarter, but I think that going forward now it takes a while for this stuff to settle in to place and create the information that we can trust and the understanding of how to calibrate it so forth. But would definitely moving to make some substantial improvements in the way that we do pipeline management in forecasting going forward.

Sterling Auty – JP Morgan

I – Let's switch over to Europe. You mentioned that, you felt that the [band] was pretty good other than this -- this large deal was that again the way that you lined up the deals because you always hate to say, well jeez, if the quarter came down just one deal shouldn't it – not just be one deal that the swing factor in any quarter?

Jim Heppelmann

Well, I think the issue there is that PTC historically does do a number of larger single transactions that in the context of a given quarter that – let me say in Q2 we, as a company, probably did a thousand transactions. And the last transaction was 10% on 75% almost 15% of license revenue in the quarter.

So the last 15% is binary, either get it or you don't. I think what we – the mistake we made and what we probably need to do going forward is be more conservative in how we guide and let more of these big deals, particularly if there's only one of them put it in the upside category as opposed to in the forecast and in the guidance.

So I think that was a execution mistake on our side, but again I think better pipeline visibility and so forth will help us better gauge an appropriate level of conservatism in our guidance.

Sterling Auty – JP Morgan

And looking across the business in the quarter was their – I think that stood out to you from a product perspective, meaning when you launched Creo, there was huge surge in the growth and what we thought was a stagnant, mature business suddenly became a growth business again.

Jim Heppelmann

Yeah.

Sterling Auty – JP Morgan

Did that just fall back to earth or was it PLM mix, how do you look back on that now?

Jim Heppelmann

Well, I think this is true. So we have really a PTC five business segments. Just let me go around that quick, we have a CAD business, which is $600 million, relatively slow growth. We are saying that's like, let's say, a 5% or 6% grower. We then have a PLM business, which is $500 million roughly. That's a faster growing business.

I think of that more like in the 10% to 15% range. And then we have three smaller and newer businesses, one in the world of embedded software helping people, engineer, the software that goes into planes, trains and automobiles. That's, let's say, a $90 million business and we think that will grow 15% or better percent going forward.

We have a service lifecycle management business, helping people design the services as they design the products. So if you think of a big piece of Caterpillar heavy equipment, there is a lot of engineering on the machine itself.

And then there is a lot of engineering and design of the service process and the spare parts and the procedures you will need to do and so forth. So we have a business we call service lifecycle management as a complement to product lifecycle management. And then we have a smaller business yet about $50 million in the supply chain planning and optimization area.

So the point really being two large businesses, three smaller ones. The largest business is our heritage business, which is mechanical CAD, that's quite a mature industry. We probably had been losing market share for some years, because we had been growing low-single digits for the last five years in the market that was growing mid-single digits. Then we came up with some pretty innovative new approaches and launched the new product, we called Creo as a brand new generation successor product.

Last year the Creo launch happened and the revenue exploded. And in fact, license revenue was up in the 20s. And overall growth was up 12%. Inside of business that had been growing sort of in the 1% to 3% range, suddenly it went up 12%.

So what's happened this year, as we've been roughly flat in the first half with last year, that's disappointing, but of course if you look at the CAGR of the two, it's still a pretty decent number. And I think what's happening is we just probably had too much growth last year and now it's a tough comp to execute against. But we definitely think on a go forward basis, this new Creo product gives us the ability we believe to March – to match the market growth rate of sort of mid-single digits.

Sterling Auty – JP Morgan

All right. Let me have one more topic and then I want to bring audience questions in as well. Let's specifically talk about the PLM business. You've had a number of domino wins over the last couple of years. How should we think about the target environment? Did we go through a renewal cycle and now it's tapped out? Or do you feel that there is still runway left in that business?

Jim Heppelmann

Yeah. So for the last 2.5 years or so, PTC talked a lot about domino account wins and we defined the domino account, think cold war dominoes. That's what we're kind of referring to. A domino account meaning a big account that if it were to fall, that would imply not only more business in that account but the potential ability to wins others like it. So our definition of a domino account was a competitor's account that we take away that has revenue of more than $10 billion. So a big account we took from a competitor.

And over the course of 2.5 years we amassed some 30 of those. And then at some point said all right, let's discontinue that terminology and language. I'm not sure we should have because it actually was a good way to measure a progress.

But we may be stopped talking about the term, domino. We haven't stopped winning such accounts. In fact, this very large European deal would have been and still may prove to be one such win. But generally what's happened is, I will give you an example of what big domino win was the Hyundai Kia Motor Company, the Korean automotive company, now number 4 or 5 in the world depending upon whose numbers it was.

A very big win. PTC displays the competitor, initially not a big purchase. So it was more – the first win was more of a psychological win than a financial with. But as we've now executed and put in place the first phase, we then followed up, and for example last quarter secured a pretty serious license transaction. And we're right back at work now and the next phase, which will involve more services revenue and another license transaction.

So an account like Hyundai we will monetize over probably 5 to 10 years as we continue to deploy more and expand and transform the way that they create service products. So all of these accounts, the initial win is interesting. It's a huge psychological victory, but you monetize them over a period of time and that's kind of where we shifted our focus as to how are we monetizing the things. And I think we're making good progress.

Sterling Auty – JP Morgan

Yeah. As you think about that monetization as a phases and you gave timeframe to put, is it smooth in those phases or really what you're talking about is chunks that you go live, they get comfortable, they bring on a new division, you get another chunk etcetera. So how should we think about how that monetization works?

Jim Heppelmann

Yeah. I think it's – to be honest it's a blend of the two because what happen is services tends to be sort of a steady flow of revenue because we have a team there and they are constantly working. They are working on phase one and when they finish phase one, they go to work on phase two and we are recognizing that ratably and so forth. The license fees does tend to come in a chunk.

Here is an order we recognize that at the point we get that order. And then there is a maintenance tail on that that continues over time. So you have sort of a steady stream of services, chunks of licenses that then contributed tail of maintenance and you keep adding those tails of maintenance together. Such that over time that account will provide us more and more steady state revenue and periodically a license peak – spike if you will.

Sterling Auty – JP Morgan

Got it. Let me take questions from the audience as well. Question here.

Question-and-Answer Session

Unidentified Analyst

Yeah. Could you speak about the reorganization of your sales force, because as far as I understand, you are changing the territory, maybe attributing one client to one that if so speak on and how it affects maybe [amidst] the quarter?

Jim Heppelmann

Yeah. In a grand scheme of things any changes we made to our sales force are pretty small. We still are organized. The worldwide sales force, they are still directed and then a reseller channel. The direct guys are divided into the Asia Pac guy, the European guy and the North American guy. So none of that really has changed. The changes we made, I will get into it a minute, they are much smaller. But just to be clear, for example the same guy is running Europe that was running Europe two years, the same guy is running Japan that was running Japan two years ago.

So the change has been more subtle than that. What we've changed is a couple of things. One is we used to have a fair amount of overlays, sales guys who helped sales guys sell a specific product, specialists who helped a generalist sell a particular product.

And I think we had let that get a little out of control where we had too many of these people and too many of these people becomes inefficient. It's a good way to get revenue but a very expensive way to get revenue because you end up paying two people on the transaction and you end up with a lot of capacity stacked up on the same accounts as opposed to going after new ones.

So we cut the amount of overlays we had roughly in half. Compared to our peers we still have quite a few to be honest. So I think it's not a dramatic change. And then we made one other change that people are taking note of which is we went from a worldwide reseller organization to having the reseller organization report into the regional heads. So it's not a significant change and the grand scheme of things relatively small changes. None of our performance in Q2 is readily attributable to these changes either I will point out.

Sterling Auty – JP Morgan

Question here.

Unidentified Analyst

Just going back to the domino accounts, roughly what percentage of revenue either license or maintenance comes from these domino accounts and how has that trended over the last few years?

Jim Heppelmann

Yeah. If you define domino accounts as these 30 accounts we took from competitors, I don't have precise data, so I’m going to have to estimate it. I would say that probably now 10% of our revenue is coming from these accounts.

On the license service maintenance side, probably more service revenue because these would tend to be very active accounts right now, probably less than 10% of our maintenance revenue, because there's so many other accounts that are contributing maintenance whether they're actively doing a deployment or not. So I would say probably measurably a little bit more license and service, a bit less maintenance, overall 10%, that's an estimate to be clear.

Sterling Auty – JP Morgan

Other questions. Question here.

Unidentified Analyst

Could you comment a little bit on how you see the mix of revenue evolving long-term between license versus maintenance and ratable? And just in terms of your comments on big deal that slipped, earlier we've seen a lot of technical software companies moved to more ratable business models because of volatility of the earnings become bit whelming with these big deals?

Jim Heppelmann

Yeah. If you look at the beginning of a quarter, when we're giving guidance, it's license, service and maintenance. We know within 1% or 2% where the maintenance number is going to end. In fact, we hit the maintenance number on the head, hit the nail on the head last quarter. And we know within a couple more percentage points where the service is going to land. So going into a quarter, because we're operating our services business essentially with three quarters of backlog.

So when we started a quarter 45% of the revenue is maintenance roughly, 25% of services roughly. So we start out knowing where 70% of it's going to come from, okay. Now the 30% we have earn in the quarter and some amount of that comes from our resellers, let's say, 25%, 30% of it come from our resellers. That's fairly predictable because that's many, many transactions hundreds and hundreds of transactions that are relatively small.

Anyone of them coming in or not coming in doesn't have a significant swing on that. Then there is sort of a base business of not big deals which might be another third let's say roughly. And then the final third coming from the big transactions.

So really the last 10% is the highly volatile part of our quarterly revenue model. So 70% of our revenue is something approaching subscription in the sense that it's billed in the quarter but was booked previously. 30% is earned in the quarter and the third of that is volatile, highly volatile let's say. Did that answer the question by the way? Sort of, okay.

Unidentified Analyst

Can you detail your margin targets on a couple year basis and walk through the drivers of how you get from here to there please?

Jim Heppelmann

Yeah. So we've been increasing and planning to continue to increase our margins by about 2 percentage points a year. So if I go back to 2009, we had 13% margins. In 2010, there were 15 and changed 2011, they were 17% and changed, this year will be 19% to 20% sort of in that ballpark and then, we'd expect to keep going more or less at that pace.

So, yeah, what are the big changes, there's a couple of very dramatic things. First of all, at the gross margin level, we are both managing down the mix of services and managing up the margin of the services. So this -- right this will account for about half of the margin improvement, because we've had a services business in recent years that was growing fast with 5% margins. So, we've cut the growth rate in half and doubled the margins just compared to last year basically. So just in the single year, we've done that that's for our overall growth but it hasn't hurt our margins at all.

We're doing that both by well -- the first most important thing we're doing there is recruiting partner network. PTC historically has been doing about 80% of the services that are done around our products and we'd like to get that in the next few years to maybe a 50-50 mix in longer-term – PTC doing a minority of the services.

The services need to be done and it takes a while to build up a partner network, we're talking hundreds of, millions of dollars worth of business here. So it takes a while to build that up but that's definitely a strategic goal that will help our margins lot.

A couple of other things we've managed down R&D spend from 19% to 20% of revenue down to 16% to 17%. We think that's a stable amount, we've worked a lot on managing down our cost of sales and marketing which has been relatively high sort of 30%ish and we're planning to manage that down to 26%, 27%, let's say 26% range. So those are some of the biggest things we're doing, with the services piece contributing the fastest most dramatic change in our operating margins.

Sterling Auty – JP Morgan

A question here in the back.

Jim Heppelmann

Can I go back to the previous question, because I do think, I missed a part of your question which was how could we manage down the volatility even more so. And I think a couple of things we need to move to a model where we guide without binary transactions in the guidance.

If we have four of them, maybe it's safe to assume you'll get two, but if you have one you probably have assume you don't get it. So that's a guidance learning I think here. But what would be ideal would be to build up our base business, the smaller transactions in the middle of the bell curve get more of those which is what we're doing with a big infusion of new capacity and get to the point where the larger transactions are either upside or better yet, could be taken randomly.

And of course they have to be framed up such in a way that they can be accounted for ratably, but we like that model because I do think that these big deals really are not our friend. And it'd be great to manage them kind of down, so they became a dependable stream of business as opposed to an unpredictable spike.

Sterling Auty – JP Morgan

Okay. I'm sorry.

Unidentified Analyst

Sounds like there was a little bit of a misunderstanding in the demand for the Creo product when it came out in the market. Are there other concerns at that representing the business in terms of, there may be another market opportunities that did not fully gathering and have you done anything to better understand what happened in that case to make sure you got a little better understanding as you're moving forward to other product lines?

Jim Heppelmann

Well, again I've put a lot of focus on pipeline management because I just feel that today I don't have enough visibility of the detail level to what's headed our way, so we didn't see that big wave of Creo excitement coming. And it blew through town and we weren't sure when it would subside right. I just don't have enough detail in, and we soon will. We're going to roll up our first forecast in the new system here in June and trust me I'm 180% committed to that system going forward.

And no, not to the system but really to a process where you use data to make decisions, you gather the data, you use it to make decisions, understand the risk element in your decisions and so forth. So that's really what I'm aiming for, that's the answer I think to better understanding what's coming.

Sterling Auty – JP Morgan

Other questions? And I think Jim to the point that you're making going back a few years Tibco was a great example, where they had some elephant deals that were – that caused a couple of quarters where the license was a mess, and they took those large deals out completely.

So I think you're right the investors I speak to, like there's a number of them that would like to see that de-risking, I agree, and you can't take million-dollar deals out, I think we're talking about the $5 million to $15 million and if there's anything larger, to get to that point. So to your point being able to take them ratably, what is it that you could do to frame them up in order to take some of these larger deals, ratably.

Jim Heppelmann

Well, we could either sell this offer on a subscription basis, we have the ability to do that. We need to make sure that the sales compensation programs are equally rewarding for somebody who does that. And then – so that 's the easiest answer.

In some cases there are commitments we're making to the customer on a deal of that size, enhance the product or whatever and then that gives us -- link those two together, that almost forces us to take it ratably, if in fact we've made some commitments, so there are certainly ways to do this. The simplest answer is sell a subscription oriented deal as opposed to a perpetual oriented deal.

Sterling Auty – JP Morgan

And I think the other thing that I got questioned a lot – you after the quarter it was obviously the competitive landscape, did any of these deals fall to the competition, has the competitive landscape either from a technology of from a pricing perspective changed, and in either the CAD business or the PLM business?

Jim Heppelmann

Yeah. I think the simple answer is no, none of the shortfall in Q2 could be attributable to competitive dynamics there were actually no competitors involved any of these deals I've been talking about. I think overall the competitive dynamics have not changed dramatically. I like our position, the competitors keep getting better, but so do we. We Creo, that's a lot better than Pro/ENGINEER was.

We have a significant new release of Windchill that came out in the last year and then a point release to followed that up, and it addressed maybe one of the biggest shortcomings in our PLM product line which was ease-of-use, that's gone from being probably our biggest limitation to maybe being an advantage now.

So I think that's a big improvement for us in this area of service lifecycle management, we don't actually have a strong head-on competitor that's really a case of a new business opportunity, we're pioneering, some new concepts there's a lot of interest and we're limited mostly by the maturity of our organization and the maturity of our solutions more so than competitive dynamics. So I like where we're at and I don't think any of our issues in the previous quarter could be attributable to competitive dynamics and I actually think we're strong.

Sterling Auty – JP Morgan

And to follow on that, so I can ask you in front of the large audience, Autodesk with their PLM solution, has any of your customers, even brought it up in conversation, where do you see from what – you've seen of it. Where does that fit versus what Windchill does today.

Jim Heppelmann

I mean I've not heard any of our customers speak about Autodesk PLM, the people I hear speak of Audodesk, PLM either work for Autodesk, or they're in this type of a discussion. Because I just don't see in the market, and Autodesk is a great company, they have many strengths, and they may produce a good solution. This is their third or fourth try at it so I wouldn't guarantee they'll produce a good solution, but let's say they do, just for a minute, to talk through the possibilities.

If you look at Autodesk's business they generally sell commodity products that involve no services through relatively unsophisticated resellers to relatively small companies. That's not where the PLM market is nor is it a way to get to the PLM market. We, on the other hand, PTC, tend to sell relatively sophisticated solutions, to relatively large customers with a consultative selling approach and then a service delivery arm. It's very different.

So I think that Autodesk's ability to get to the PLM industry and let's say the PLM marketplace requires a lot more structural change than a select product offering if in fact they produce a select product offering. I just don't see them showing up at Airbus to compete for a PLM deal, it's inconceivable to me, but let's see how it plays out.

Unidentified Analyst

Let's talk a little bit about ALM, because I think it did well in the quarter, and you I – when you originally bought the company for ALM, I thought you were nuts. I thought it was a horrible deal.

Jim Heppelmann

I thought you were nuts for thinking that by the way.

Sterling Auty – JP Morgan

And then subsequently in my writing I came back and gave you the (Inaudible) that jeez, what I was of misinformed in terms of where it was focused, for those that maybe had my mis-interpretation of it, what is it that it's doing why is it growing as well as it has and how big is this opportunity for you going forward.

Jim Heppelmann

So let me give you two ways to look at it, the way you first looked at it and the way you might now look at it. The way to first look at it is software engineers or software engineers and whether you're in an IT department doing internal applications or in a software company like PTC or part of an engineering team at Volkswagen, you're a software engineer you need ALM view. ALM is a fairly mature market. It's 4% grower is dominated by the likes of IBM, HP, Microsoft, and many others, and you'd say why PTC, would you by a $75 million company and jump into that [foray], okay that's one view and that's maybe be the original that you had.

There's another view which says there are more software engineers building your favorite automobile, now then there are mechanical engineers and there is so much software inside that car. There's software in the brakes, there's software in the engine, there's software in the airbags, there's software in the navigation system, there's software everywhere in that thing.

But the big difference is, by and large these software engineers are writing software for "computer" if you will, that is being simultaneously designed. So like the brake system, there's a control algorithm, controlling a mechanical braking system and you're co-designing the two and that requires a tremendous amount of back-and-forth and interdependency between the people designing the brakes and the people designing the software control system for the brakes.

And therefore a system that hooks these two people together, helps them understand the interdependencies and work around, common requirements and if I change this what does it mean for you over here. That's highly valuable and that type of a system doesn't exist from IBM, from HP, from Microsoft or anybody else.

So we're targeting the software engineers who work inside the engineering departments of companies making physical things. And it turns out that that is the fastest growth by far of those engineers, I mean you might think that PTC began life appealing to mechanical engineers, and in a lot of products that stuff's somewhat commoditizing.

If you're making missiles for example, missiles don't look that different now than they did 40 years ago, nor is the propulsion system that much different but the ability to acquire a target, lock in on a target, and steer yourself into that target, that's very different, but that's all software, right?

So how do we, PTC would approach the software engineers, at a missile company, maybe that's a bad example but this is a big local one here who's our customer, we would approach the software engineers and say we can help you co-develop the full missile the hardware system, the software system and understand the requirements, the system engineering on what parts of this of this system were trying to be a build will be mechanical, what parts will be electronic, what parts will be software, how to parcel out the work, how to work collaboratively, understand changes made here have impacts over here so forth. That's a very interesting story that that the traditional ALM can't touch.

Sterling Auty – JP Morgan

I like it. And with that, we're going to bring it to the close. Jim, thank you so much.

Jim Heppelmann

All right. Great. Thanks Sterling.

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Source: Parametric's CEO Presents at JP Morgan TMT Conference (Transcript)
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