PTC Inc. (PTC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to JPMorgan's 50th Annual Global Technology Media and Communications Conference. Thanks, everybody, for being here today. We're very excited to be back in person. I'm Raquel Betesh. I'm a software analyst here in research at JPMorgan. And today, I'll have the pleasure of hosting Jim Heppelmann, the CEO of PTC; and Kristian Talvitie, the CFO of PTC. Thank you both for being here.

Thank you.

So to kind of get the ball rolling here, for those that aren't as familiar with what PTC does, can you guys give a brief overview of the company's roots and how that's evolved into the market today?

Can I have Kristian do his safe harbor thing quickly?

Yes, absolutely.

Yes. We may make forward-looking statements, and there are, of course, inherent risks and uncertainties. We would point you to our website and our SEC filings for a full list of disclosures.

Okay. Great. Given that, PTC is an industrial software company, a little under $2 billion in revenue right now. Growing double digits fifth year in a row, expanding margins for the many, many years in a row. We serve industrial companies that manufacture and service products. So we give them software -- sell them software for engineering manufacturing and then servicing products in the field to try to make all that more efficient, greener, what have you.

So why have you guys actually structured the company into 2 segments, Digital Thread and Velocity? You could kind of talk through what encompasses each and what the different strategies are there?

Yes. At the high level, we have 2 main business units. The Digital Thread is the large core business, and the Velocity business is several smaller native pure SaaS properties. And what's really happening in the big picture is that our industry, like so many others, our industrial software industry is moving to SaaS. And so on one hand, we have a strategy. We've acquired several of the leading pure SaaS properties, a company called Onshape and a company called Arena. And that makes us the largest player in pure SaaS, and we have a business unit focused on agile product development using pure SaaS products. Meanwhile, we're bringing the core business, the core CAD, PLM, IoT, and AR business forward also to SaaS, but there, of course, we have to bring the customer base along with because many of those customers have on-premise deployments at current.

So kind of piggybacking off the transition to SaaS there, what motivated you guys to start and accelerate the transition from on-premise to SaaS?

Yes, I think there's 3 things. First of all, the market is going there. Customers want it. They're sick of the complexity of this on-premise software and the cost of ownership, the care and feeding required. Second thing is, for us, it's a revenue growth opportunity. All of our contracts basically are subscription. And if a customer paid us $1 for a subscription software on-premise, they pay somewhere around $2 for that same software served to them in SaaS. So there's an opportunity to really monetize the base. We already have, but also larger deals going forward. And then the third thing would be share shift opportunity. PTC is well ahead of our competitors in this shift to SaaS. We see it coming. We've made some substantial investments with the Velocity Group, but also with the core business. And we think that as the world moves to SaaS, we will emerge with a larger share than we had back on the on-premise side because we'll be leading the way.

So kind of in relation to...

Sorry, Jim, just maybe clarifying on the revenue expansion opportunity, 100%, there's an opportunity to expand our, we'll say, wallet share with customers, but it's actually a cost savings in the end for customers.

Yes, for sure, they pay us $2 and they save $1 or $2 themselves by not having the complexity in the care and feeding of those complex enterprise software systems.

So kind of in relation to the transition to SaaS, we know that PTC consistently emphasizes ARR over revenue as a way to evaluate the strength and health of the business. So first, if you could talk us through why isn't revenue a reliable metric to evaluate PTC?

Yes. Let me start with our definition of ARR. It's annual run rate of our active book of business, our active book of contractually binding contracts. On top of the active contracts, we have contracts that are binding but not yet active. We call those deferred ARR. So think of that as a type of backlog that will come into play. Usually, it's because of a multiyear deal that grows over time. So $1 million in the first year grows to $2 million in the second year, $1 million is active, the second million is sitting out there and deferred. So just given that definition, what we call ARR is not really revenue per se, but every dollar of ARR will become $1 of revenue. It's just a question of when. Sometimes ARR converts to revenue sooner than it should because of ASC 606. That accounting standard makes our revenue recognition a little wonky. So for example, a $1 million contract, we take about $550,000 upfront rather than ratable over time. Now, if that contract was a 2-year $1 million contract, we take a $1.1 million upfront. And for we're a 3-year contract, we take 55% of 3 years upfront. So we actually get in a funny situation where sometimes revenue is out ahead of us, and we're taking orders to revenue that the customer doesn't even have to pay us for, for a year or 2. So we say, if you go back to our book of business, if that book of business is growing, it will all convert to revenue, well, whether it's growing or not. But I mean, if it's growing revenue, we'll follow over time, just revenue will be more volatile. And then we use free cash flow as a key metric because ARR reflects what the customers are actually going to pay us this year, and from that, we will generate the free cash flow. So revenue ends up being a wonky metric that is a little hard to predict, and frankly, is more volatile than it should be because of this ASC 606 standard. But free cash flow and ARR are great ways to measure how the company is doing.

So in terms of the trajectory of how much your revenue is going to be composed of SaaS, what should that look like over time, if you can give us an idea?

Yes, we're about 15% SaaS today. So of our book of active contracts, about 15% of the value is from SaaS contracts. We expect that by 2026 that will double, and if you go out in a 10-year horizon, they will become a significant majority of the entire book of business. We'll probably have perpetual customers for -- not perpetual, I'm sorry, on-premise customers for a long time because, for example, we do a lot of projects with the military and like the National Nuclear Security enterprise, they're not really looking for a SaaS solution, but they're a very large customer. So we'll have some holdouts probably for a long time, but we do think the vast majority of the base will matriculate from on-premise to SaaS over the next 5 and then 10 years, and that will generate for us a lot of additional growth tailwind.

Can you give a little bit of color to the general professional services trajectory over the last couple of years?

Yes. PTC wants to be a high-growth, high-margin software company. And 10 years ago when I became CEO, about 1/3 of our revenue was services. And I sort of, Kristian agreed to me, view that is not strategic, we'd be better served by having an ecosystem of services partners, Accenture, Deloitte, Kalypso, those types of companies. So we began to deemphasize services, and basically, services now represents about 9% of our revenue last year, down from 33%, okay? We recently did a transaction to sell a chunk of it to a partner, which will take it down to, let's say, 6%. I think 5% is about the level of services we should have because we need to develop the practices, we need to train the partners in doing those practices, and then support them, bail them out if they get into trouble sometimes, so forth. So we need a small amount of services, but we want to be a high-growth, high-margin technology company. And the deemphasizing of services, of course, has hurt our revenue growth a little bit, historically, looking backwards, but sure has helped our margins. 5 to 10 points of margin expansion was achieved by deemphasizing the services mix and the revenue.

So the last question here kind of directly in relation to the transition to SaaS. What impact do you expect this to have on your approach to pricing and discounting going forward?

Well, the price goes up because we're providing more value. It's not that we did a price increase. We used to give you software. Now, we put that software on servers and supply it to you, and we upgrade it, maintain it, and care and feed for it and so forth. So the price goes up because the value goes up. It's not a price increase. There are different reasons to do price increase like inflation. And of course, all of our contracts have price, not all, but almost all of our contracts have price increases contractually built into them. Sometimes they mirror CPI, which right now is quite a big number. Sometimes they're just a predetermined fixed amount that we can raise the price by. So our prices will go up, but that's different than the revenue or the booking side is going up because of the shift to SaaS.

I want to talk about how resilient you view PTC's business model in the event of macroeconomic headwinds.

Yes. On the earnings call, I ran through some kind of fund scenarios. So let's go back through them here. I said, if you just want to use big directionally accurate numbers so that the math is easy to follow, consider PTC to be $1.5 billion of ARR. We're like $1.5 billion, well $1.6 billion constant currency, $1.32 billion at current FX levels, but let's call it $1.5 billion. And in the next year, at current pace, we'll add $300 million of new bookings and will churn a little less than $100 million of churn. So you take the $1.5 billion, you'd add the $300 million, you'd subtract the $100 million, and you get $1.7 billion as compared to $1.5 billion, that's 13% growth. So that's what happens normal course and speed where we don't have a macro meltdown. Let's talk about what happens if we do have a macro meltdown. So in 2009 and again in 2020, when we had bad -- the last 2 really bad macro situations, first thing to know is our maintenance churn rate did not increase, not materially. In fact, back in 2009, our maintenance, this was our renewal base, actually grew 3%. And back in 2020, we didn't really see much pressure on it either. Keep in mind, our average contract is 2 years of length. So in any quarter, only 1/8 of the contracts on average come up for debate anyway. And then our software is very, very sticky. And plus we have price increases. So what's really happening is we don't think that there's much jeopardy around the renewal rate. And we have 2 data points that suggest 0 jeopardy. If you look then at the bookings, if the $300 million were impacted by bad macro, in 2009 we had 4 bad quarters. I mean, the industry had 4 bad quarters, and on average, the industry dropped 25% to 30%. So let's take 30%. If that $300 million drops by 30%, well, 30% of $300 million is $90 million, that's $210 million. So we add $210 million and subtract $100 million, and we get $1,610 million over $1,500 million -- $1.61 billion over $1.5 billion. Turns out that's 10% -- or that's 7% growth. If it only lasted for 2 quarters like it did in 2020, 2 years ago, you'd only take out $45 million, and you'd have $255 million minus $100 million. You'd have 17 -- I'm sorry, $1,655 million over $1,500 million. That's 10% growth. So bottom line is we have a very resilient model that as we demonstrated in 2020, when we posted double-digit growth despite the pandemic, we think we're in good condition to probably have double-digit growth. I mean, you tell me how bad the macro is, if we don't have double-digit growth, then probably we're going to have -- in an uglier scenario, we're probably still going to have high single-digit growth. By the way, right now, we're clipping along at 13% growth in the last 4 quarters. So the 13% could slow down a little bit, but it's hard to get it to low single-digit growth. I mean the scenarios you have to take are just pretty outrageous. Then one last thing is, if we had 7% growth, I think we'd still have 20% free cash flow growth. Why is that? Number one, we already took out a lot of cost. Number two, price increases. And number three, we'd still have growth that would come in at pretty high margins given that we dial back spending and hiring and things like that. So I think we're in a pretty good position to deliver strong free cash flow growth even in very bad macro situation. And I think we're unique compared to our peers, not ANSYS, not Dassault, Siemens is not really a public peer, but they don't have that business model. So they're a little bit more influenced by what happens in the coming quarters than we are, and it took us a long time to put this business model in place. We're quite happy that we did.

So I want to get into the core part of your business a little bit here. So that includes CAD and PLM, which represented about 70% of ARR in Q2 and they tend to be what most people think of when they hear PTC. So what are the market growth rates here? And how does PTC compare?

Yes. In the CAD business, our core product is called Creo. Many years ago, it was called Pro/ENGINEER. Somewhere along the way, we remodeled it and renamed it Creo. Creo has been growing right around 10% in a market that's growing right around 5%, and that's been true for years. And people say, "Well, how can you sustain that? What about the old Warren Buffett saying when a tough market meets a good management team the market usually wins." Well, actually, it's because we have a different business model than the people we're compared to. You're comparing a subscription company to a perpetual company in the case of most of our industry peers, and that produces very different growth rates. Perpetual is a hard business model to grow. It's like -- it's conceptually like a subscription model with a very high rate of churn because you do a big deal and only a small part of it carries forward into next year. You have to do another big deal just to get back to even in the following year. So CAD brought twice the market growth and churns out the PLM about twice the market growth, too. The PLM market is growing 7%, 8%. Our PLM business has been clipping along around 14% over the last 4 quarters. So we're, again, outgrowing the market there for the business model advantage. And also, we have a higher SaaS mix than most of the people we're compared to and that higher SaaS mix also creates a bit of a growth tailwind. So our core CAD and PLM business has grown double digits for 18 quarters in a row. It's not a fluke. It's a highly repeatable phenomenon, and we're forecasting that going forward as well.

If you want to talk a little...

Sorry, just adding -- I think, adding to that, there's the macro trend, if you will, of digital transformation and for the part of the enterprise that we serve, PLM is really the backbone for that digital transformation, and obviously, CAD plays a role in there as well.

Yes. Let me elaborate on that point. What Kristian is saying is you hear a lot of people talk about a system of record, a system of engagement. PLM has become recognized as the system of record for product data. And so if you're talking about a product that's still under development, the only system that knows anything about it is PLM. And PLM is product life cycle management. So it keeps tracking its products when they're being manufactured, when they're out in the field at the customer site. So what people have realized, particularly with a hybrid workforce is how do you work from home in that product life cycle, whether you're in finance, supply chain, procurement, engineering, manufacturing. How do you do anything from home if you can't log into a system and get the right data? So COVID has actually been a nice tailwind, I'd say, for the whole PLM industry. But again, PTC being a very strong player probably benefited disproportionately from that tailwind.

What are your core verticals for these segments? And where do you see the opportunity going forward and potential risks?

Yes. Our biggest markets would be industrial first, and that's everything from John Deere and Caterpillar to Carrier producing HVAC equipment, things like that. A second large industry for us is aerospace and defense. And Raytheon and Lockheed would both count amongst top 5 customers. And obviously, there's a little bit of macro tailwind in that part of the business. Somebody's going to produce all those new missiles that we're shipping over to Ukraine for instance. Then, we're in electronics and high tech, and it tends to be high-end computers and other forms of electronics products, telecom, networking equipment, things like that. Then we're in medical devices. Quite a large industry for us. We have quite high share. I mean, as an industry, it's not as large, but then I'm talking about Medtronic, Boston Scientific, companies like that. So there's also a retail sector, which is where we're providing product portfolio management to companies like Target or really any of the big box stores or any of the stores you see in the shopping mall that have a lot of private label products. They may be manufactured by some other company, but they're specified and product managed by the label that is on the front door of the store, and they buy our PLM products as well.

Automotive.

Automotive. Yes, sorry, 15% of our business is automotive. We have quite large positions, for example, at Toyota, at BMW, at Volkswagen, Audi. And then in the truck business, places like Volvo and PACCAR and so forth are large customers as well. Thanks Kristian.

So getting into the growth aspects and segment of your business, I want to get into what's driving the slowdown in IoT growth there and how you plan to stimulate that going forward in the back end of this year and future years?

Yes. What Raquel is referring to is the fact that we had expected stronger growth in IoT this past year than the company delivered. Now keep in mind, the company is delivering overall growth that's stronger than we had promised. We've raised our low-end and high-end guidance a couple of times in a row now. But within the portfolio, a piece of it, which is what we call the Digital Thread growth segment is a little behind expectations we set. And I think 2 things have hurt IoT. I mean, first of all, the industry has not performed at the level that McKinsey and other analysts had projected. I think that's largely because of the pandemic, because IoT isn't just software, the things are physical. So for example, if you want to make a factory smart, you have to go into the factory and inventory and connect the physical assets, and that's been discouraged by a lot of companies. And plus, there's what I call the hair on fire problem. If your factory is shut down because you can't get semiconductors, nobody is really worried about its productivity right at the moment. We're worried about getting semiconductors. So it's been a little bit of a pandemic influence market slowdown. And the second thing is the market would be better served by solutions than platforms. And so PTC has had a strong focus on pivoting our strategy from ThingWorx as a platform to ThingWorx as a digital performance management solution, and we now have those products in the market, and they are showing very promising signs. So just so you all know, by slowdown, we wanted the business to grow mid-20s. We said 20% to 30% at the beginning of the year, Kristian and I said that. It's been growing sort of mid-teens, which is still accretive to the company's growth rate. And we've said we think that by our Q4, we're in our Q3 now -- by the end of our Q4, we'll get back to a 2 handle, probably a low 2 handle, but that business will perform. And meanwhile, we've raised the CAD and PLM growth outlooks and raised the company growth outlook.

So moving on to the Velocity segment of your business, which includes Onshape and Arena. In the Digital Thread business, you guys have a well-established market with 3 main players. Can you talk about the competitive environment here in your Velocity business?

Yes. Just first to clear on the Digital Thread piece. The most comparable companies to us there would be Dassault Systems, a French company, is public. And then Siemens PLM, which is part of the German Siemens conglomerate, which -- it's hard to tease out how they're performing, although Jay Vleeschhouwer publishes a lot. Autodesk is somewhat of a competitor, although only a part of Autodesk competes with a part of PTC, but they'd certainly be a competitor. And then you'd have ANSYS and other companies that are more friends than foes. And in fact, ANSYS is a good partner of PTC. Pivoting though to the Velocity pure SaaS business, it's quite a different story. There's only one company on the CAD side that has a product, anything like our Onshape product, and it's Autodesk with their Fusion product. And Fusion isn't really pure SaaS. I mean, frankly, it started as an on-premise software, and it got kind of re-engineered a little bit. Onshape was invented by the SolidWorks inventors to be pure SaaS from day 1. It's quite a different product actually than Fusion and very, very different than anything else. So there, I think we have a product that's quite distinctive compared to anything you compare it to. And then on the PLM side, our Arena property is at least 10x bigger than the next property it competes with. There's a couple other very small sort of single-digit millions SaaS PLM companies, but Arena is, like I said, about 10x larger than #2 and growing, performing well.

Recently, you have acquired Intland Software, expected to close in Q3. Can you talk about what that acquisition adds to -- what value that adds to your customers and shareholders?

Yes. Within the broad category of PLM is a subcategory called ALM, application life cycle management, which really means software life cycle management within a physical product. So automobiles, for example, are filled with software, so are airplanes, so are medical diagnostics equipment, so are servers, whatever. And particularly in places like automobiles and medical devices, it's actually a regulated industry. This is safety critical software. So if some Tier 2 supplier change code that ended up in a Tier 1 system that ended up in OEM's automobile, and that line of code caused people to die, it'd be a real problem. It's a bug and suddenly the brakes don't work or something like that. So there's a lot of industry regulation around traceability, who changed what and why and can you prove that, that test didn't create any problems, similar things with the FDA and medical devices. So Intland is a next-generation ALM offering. ALM is a space we're already in. We got into that 10 years ago. It's part of our PLM story, but Intland really was a leapfrogging next-generation offering that's quite attractive and has already quite a strong position, for example, in German automotive industry, which will leverage and grow and globalize and so forth.

A couple of questions came in on the iPad. So someone is asking, can you provide details between how you distinguish your prior cloud goals with the new goals presented at your Investor Day? At present, it seems like you're not accelerating your cloud transition, but rather just continuing at the current pace. Is this the right perspective?

Yes. So there's, again, 2 parts to our cloud story. There's the Velocity part. There is nothing but cloud growing fast, let's set that aside, grew 28% last quarter. Then with the core business, what we announced last October and then again at our Investor Day in December was that we were restructuring to do cloud differently. We were basically doing a managed service offering where we would run individual cloud systems for individual customers. But each of these systems ended up being a little bit what you could call a snowflake -- snowflakes are all unique. And therefore, there was not great efficiency in running many of these systems. For example, if we came out with a new release of the software, we had to independently strategize how to upgrade every system. So it just didn't give us the margin profile we want. And then we're doing some things in the field we want to change. So we announced kind of a restructuring of how we did SaaS back in November and December and took some cost out, rearranged the organization, and changed the strategy a little bit for SaaS, and now we're doubling down with a multi-tenant SaaS done the way it should be done. There was a little bit of a lull in that period because we kind of stopped doing it the old way, while we put the new model in place. But yes, I think we're -- we have a new model in place. We announced Windchill+, which is the SaaS version of Windchill, just announced that, I don't know, in the last month or so, and we're off to the races with that. So a little bit of a lull while we change sources, and now we're ready to go.

Someone is also asking if you can talk about the cross-product penetration and what are the levers to greater product penetration that you're working on?

Yes, Kristian, you want to -- I think you probably have off the top of your head some metrics of -- that you maybe could share about, how many customers have 1 product, 2 products, 3 products, 4 products.

Yes, I don't know if I have it off the top of my head, but I mean it depends a little bit on the product group. So for example, between CAD and PLM, there's a very high degree of cross-pollination already. I think that there is a significant opportunity. However, with other product groups, like IoT, AR, including some of the newer ALM stuff, to continue to penetrate the existing base while adding new customers as well.

Yes. Maybe I could take it up a level and kind of explain the logic. So first of all, CAD systems, like Creo, generate tremendous amounts of data, and the data is in configurations that would remind you of software. Lots of little pieces that can be independently changed and then they bubble up and so forth. So CAD used at scale requires PLM to manage the data, just being practical. That's like a fact out there. So anybody we originally sold CAD to who achieved some level of scale has come back around and purchased the PLM from us. PLM then ends up being the system of record, the backbone, and we see IoT as a way to get data from products in the field and assets in the factory. And AR -- so IoT has strong affinity to PLM. If CAD defines the product, IoT understands how it's performing after it's been manufactured. I used to say that IoT is like next-generation PLM concept. And then augmented reality is really a 3D technology that actually consumes CAD data. So anyway, there's a lot of affinity between these different product lines. And we're really getting fairly good at and increasingly focusing on cross-selling so that we take a product -- a customer, who bought one of these products from us, and over time we work to get more of them represented. And ALM would be the parts on the bill of material and PLM that are software-based, right? So you need ALM to track that.

I want to open it up to a Q&A here if anybody in the audience has any questions, please feel free to raise your hand. Okay. I have more questions. How are you guys thinking -- or how should investors more so think about ARR growth and free cash flow in 2023?

Yes. I mean we haven't guided 2023 per se, but we have some kind of previously published directional goals out there, let's say. I think that the previously published free cash flow goals, we're in good shape to hit even in the face of some macro headwinds for reasons aforementioned, that our business model is highly resilient and that there are some real tailwinds around margin expansion that are going to help us. And then in the case of ARR, I mean our last quarter was a pretty strong quarter. So I can't predict the future. We did not see a downturn last quarter. In fact, our European business had 19% ARR growth and very strong bookings. So I think our view is that we'll see what happens with ARR, but it's going to be somewhere between good and great. And the -- in the cash flow numbers, we're standing beyond.

What do you see as the biggest risks to achieving targets going forward?

Well, I think there's more risk on the ARR target than there is on the free cash flow target. And the reason I say that is because if bookings slow down sooner or later, that will cause ARR to slow down a little bit. But I showed you bookings can slow 30% for 4 quarters in a row, and we could still deliver 7% ARR growth. That's not a forecast or guidance. That's just playing fun with numbers here, doing some hypothetical modeling. So the thing is we've set an expectation that we won our ARR growth to increase to mid-teens. So we're at 13% right now. We're hoping for it to expand from there. Of course, when we set those things some quarters and even years ago, we didn't necessarily see the impending downturn that you're all looking at now. So I think we could have a little bit of ARR slowdown, although, again, not that much. And I think we'd be in relatively good shape against the free cash flow targets in any case.

I want to touch on the FSG segment a little bit because we haven't yet. Can you just talk a little bit about what area -- sorry, what portion of your revenue this represents? And despite being maybe a smaller component of revenue, just talk about kind of how it enhances PTC's portfolio and what the value add is there?

Yes. Of our $1.5 billion or so of ARR, about $200 million of it is in this category called FSG. FSG is a focused solution Group. FSG is a collection of products that are very interesting products, but not mainstream. So we've -- like, for example, our Servigistics software, it appeals to a certain profile of customers. It's very, very competitive. So we have a group that manages what's effectively a collection of cash cow products. These products generally have been low-single-digit growth and then very high contribution margin. So they're actually very interesting in our cash flow story. What's happened though is our ALM product was in the FSG book of business in that portfolio, sub-portfolio. And we're putting Intland there so as to not change the buckets of how we report revenue to you. So the effect of putting Intland in the FSG portfolio is that it should take FSG growth from what we had characterized as low-single digits to what we're now characterizing as mid-single digits going forward because Intland is a strong growth driver, and we have quite some interesting synergies as well. So I mean, our view would be that FSG should be a mid-single-digit grower. The core business should be a low-double-digit grower. And the IoT and AR business, we'd like to get it back to that 2 handle, probably a low 2 handle. And then the Velocity business, we said 20% to 30% growth, and it's been growing at 28%. So that's clipping along more or less as planned. And that's coming up on $100 million of revenue in the Velocity business.

So on the back of an Intland, can you explain maybe what Codebeamer is to those less familiar? And then kind of talk about your GTM strategy there?

Yes. So the product Codebeamer comes from the company Intland. So Codebeamer is a name that will live on and Intland will fade away because it's a company that doesn't exist anymore, but the product Codebeamer will exist. So Codebeamer is an application life cycle management capability. It starts with the requirements on one side and test cases on the other. So you have a set of requirements, a configuration of requirements the team has to execute against. They go, write code. You track how a configuration of that code has a configuration of tests that prove that, that code complies with those requirements, therefore, nobody is going to be killed, for example, in a safety critical setting. That's basically what it does. It interacts with source code management systems like GitHub and various other development tools, but it's really the system engineering, ALM requirements through test view of the software subsystems in a vehicle or a medical device or what have you. That will be reported in our FSG segment because I don't want to change the reporting, but will be sold by the PLM team that sells the ALM products today frequently. So it will be sold as part of the mainstream but reported where it currently sits.

We're about out of time, but Jim and Kristian, thank you both so much for joining us today. It's been a pleasure hosting you, and I hope everyone enjoys the rest of the conference.

Great. Thank you. Thanks, everybody.