Autodesk Inc (ADSK) — Q2 2016 Earnings Call Transcript

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our second quarter of FY 2016. Also on the line is Carl Bass, our CEO; and Scott Herren, our CFO. Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at autodesk.com/investors. As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call. During the course of this conference call, we will make forward-looking statements regarding future events and the anticipated future performance of the company, such as our guidance for the third quarter and full year FY 2016, our long-term financial model guidance, the factors we used to estimate our guidance, including currency headwinds, our transition to new business models, our market opportunities and strategies, and trends for various products, geographies and industries. We caution you that such statements reflect our best judgment, based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time-to-time with the SEC, specifically our Form 10-K for fiscal year 2015, our Form 10-Q for the period ended April 30, 2015, and our current reports on Form 8-K, including the Form 8-K filed with today's press release and prepared remarks. Those documents contain and identify important risk factors and other factors that may cause our actual results to differ from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented on the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of our GAAP and non-GAAP results is provided in today's press release, prepared remarks, and on the Investor Relations section of our website. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now, I'd like to turn the call over to Carl.

Thanks, Dave, and good afternoon, everyone. We continue to be pleased with the progress of our business model transition. Strong billings, deferred revenue growth and recurring revenue growth were highlights in the second quarter. 55% of the second quarter revenue was recurring compared to just 44% in Q2 last year. What's more, our ARR, or annualized recurring revenue, increased 23% year-on-year in constant currency. That's real progress on the business model transition ahead of what will be the bigger transition period when we discontinue selling new perpetual licenses. We'll talk more about ARR and its importance at our Investor Day event next month. We're also pleased with the growth of new model subscription types. They continue to show strong year-over-year and sequential growth. Subscription additions in Q2 were led by desktop subscriptions, again comprising more than half of our total subscription adds for the quarter. Since we launched desktop subscriptions last year, we've seen a steady increase in volume and an increase in the percentage of annual contracts, which is now approximately 80%. As expected, AutoCAD LT continues to lead all desktop subscription products, which is important because LT has historically been our highest volume product and represents the biggest opportunity to convert non-subscribing LT customers. Our channel partners have also been steadily increasing their desktop subscription business. In Q2 last year, approximately 40% of our desktop subs came through our channel partners, and that has increased to approximately 60% this past quarter. Total maintenance subscription additions for the quarter were lower than expected. Despite strong attach and renewal rates, we no longer offer upgrades for non-subscribing customers and we simply had fewer opportunities to attach a maintenance subscription. Our focus for the rest of the year will continue to be on converting non-subscribers to subscribers. One area that helped drive billings, but was neutral to the subscription count, was an uptick in multi-year maintenance subscriptions. We removed the discount for multi-year maintenance subscription and that prompted a surge of activity. The upside for Autodesk is securing the relationship with the customer for multiple years and collecting the cash up front. We're quickly approaching the end of this fiscal year when we stop selling new perpetual licenses for stand-alone products. We started the process in Q2 when we stopped selling new perpetual licenses for AutoCAD LT in Australia and New Zealand. The results were very much in line with our expectations. We experienced a surge of buying perpetual LT licenses prior to the cut-off date. Combined seat volume in perpetual LT and desktop subscription LT grew on a year-over-year basis. This is clearly a positive data point as we look ahead to the end of sale of perpetual licenses for most individual products at year end. Looking at the AEC industry, BIM adoption continues to fuel our business in addition to the general strength of the commercial construction market. We're excited about our cloud-based products like BIM 360 and the recently introduced A360 Collaboration for Revit, which connects building project teams with centralized access to BIM project data in the cloud. This new product had a great win in Q2 where it displaced a competitor on a major U.S. airport project. On the structural engineering side, our new offering, Advance Steel, gained momentum with numerous competitor displacements in the quarter. Looking at our manufacturing business, our automotive solutions continue to lead the way. We can count almost every car company in the world as a customer. There is broad use of products from conceptual design, all the way through manufacturing, and we've seen substantial expansion of the use of our products throughout the auto industry. And we're really encouraged by what we're seeing with the adoption of Fusion 360, the first cloud-based 3D CAD system. Fusion 360 connects the entire product development process where users can design, test and fabricate in a single cloud-based tool. Usage is growing quickly and we're delighted to see that the majority of our customers are switching from legacy desktop systems, such as SolidWorks. We'll talk more on how engineering software is moving from the desktop to the cloud at our upcoming Investor Meeting. Our simulation portfolio experienced strong growth in the second quarter with new business centered in automotive, industrial machinery and consumer products. Simulation provides key insights for our customers to design and manufacture better products. We also saw continued investment from large automotive supply chain customers investing in solutions for advanced materials. Our new NASTRAN-based solutions had wins in many new and existing accounts. From a geographic standpoint, it continues to be an uneven environment. Strength in the U.S. is being tempered by continued weakness in Japan. Japan impacts both our APAC revenue as well as our PSEB revenue line, as Japan has historically been a significant market for LT. We also saw weakness in most of the emerging economies and despite recent news to the contrary, we saw strength in China last quarter. Following my comments last quarter, others in the industry have been talking about their approach to the Internet of Things. We believe that capitalizing on this opportunity will require more than applying yesterday's technology. To bolster our efforts in this area, today we announced an agreement to acquire SeeControl, the innovative developer of an enterprise IoT cloud-based platform. The SeeControl service helps manufacturers and system integrators to analyze, control and manage things remotely. Just as we have changed the CAD, CAM and PLM markets with cloud-based products, we are doing the same with Internet of Things, enabling our customers to easily incorporate IoT capabilities into their projects. This is an exciting area, and we are looking forward to developing it. Now let me get back to the business model transition. I'll reiterate that this transition is not just about moving to a subscription model. We are transforming our business and the products that our customers use. The cloud is enabling our customers to think differently about how they approach design, simulation, production and collaboration. I'll also repeat once again that our business model transition will not be perfectly linear, and the amount of business that we transition, the number of subscription additions and the mix of subscriptions issued will fluctuate from quarter-to-quarter and year-to-year. Our transition will not look identical to some of the other high-profile software company transitions for many reasons, including a significant difference in our customers' price points, competitive position, our channel, and the fact that we already had a maintenance subscription business that represented approximately 40% of our revenue before we started that transition. We've made good progress in the transition to-date, and we are now ready to accelerate the process. We'll start by ending sales of perpetual licenses of AutoCAD LT in APAC with the exception of Japan at the end of this quarter. Next week we'll announce the date for when we'll stop selling new perpetual licenses for suites, but I'll say that we are accelerating our plans that substantially move up that date. At our Investor Day event on September 29, we'll provide you with our updated view of our model transition and our enthusiasm about the steady state. In the meantime, new disclosures that we made today around ARR, the percent of recurring revenue and the change in the end of sale stage for perpetual licenses illustrate the progress we've made so far and our plans to capitalize on and accelerate this early success. As we look at the second half of FY 2016, we remain confident in our billings and subscriptions outlook. We've updated our revenue outlook based on a greater than expected portion of our sales shifting from perpetual licenses to new subscription types which are deferred and recognized ratably. FX headwinds remain persistent, but they haven't gotten much worse than the first half of the year. We continue to believe that FY 2016 will be more back-end loaded than usual given the deadline for end of sale for new perpetual individual product offerings. To wrap things up, our strong conviction in the model transition is supported by our results. Undergoing this transition will provide our customers with greater flexibility and a better user experience, while creating a more predictable recurring and profitable business for Autodesk in the years to come.

Thanks. Carl, I just wanted to clarify a comment you made that the lowering of revenues really related to the business model transition, not a material change in the actual core operations or traction you're seeing with your solutions in the market?

Yes, so, Brent, yes, let me try to be as clear as possible, and, Scott, feel free to jump in. It is really just a transition from – so no change in volume in business. This is really about how we're going to recognize the revenue that comes in. And what we saw in this quarter and we're projecting and in some cases programmatically accelerating is that more of the revenue is going to move to ratable, which is just arithmetic, to get to the fact that revenues are lower, even though there's no change in the fundamental business.

Okay. And just to your comment on Japan. It's been an issue for many vendors, but there's also another issue which I think Adobe has highlighted, that Japan really hasn't made the move to cloud. And I'm curious, as you move the transition to more subscription in cloud, how do you think that market reacts as you start to remove the core? It seems like that may pronounce the weakness there for a little bit longer than perhaps than we think. I'm curious if you could just provide any comments on how you think that will play out?

Yes, sure, Brent. First of all, I think it is true that as we've seen over the years in adopting new technology and business models, Japan has never been the leader, and I don't expect that to change. I mean, one of the ways that we're doing this transition that does give our Japanese customers a way to change is people who have perpetual licenses and maintenance can continue to stay that way. So we will have avenues for people to continue buying that way, and so for the majority of customers, it will change, but they can control it to some degree. The second thing that's interesting is what I'm seeing which is more anecdotal at this point; there is a split in the Japanese market. So on many of the new things we're doing, so like these new products like Fusion, which is a cloud-based CAD product, we're having dramatically better results in Japan. We're just releasing a Japanese version of the product because it's been so successful, and that kind of runs counter to what we're seeing in the mainstream. So I wouldn't say that this enthusiasm for the cloud trumps what will be traditional customers' way, but there is a new generation that is looking at doing things differently, and there's definitely at least an undercurrent in Japan of that.

Hi. Thanks, guys, and I appreciate you taking my question. I just had a question on the subscriber mix that you saw this quarter. If I just compare the press releases over the past couple of quarters here, in Q4 you talked about the majority of the subscriber additions being maintenance subscriptions. In Q1, you said half were traditional maintenance, half were new type. And then this quarter, you talked about the majority of subscriptions being the new subscription types. Just wondering what trend you're seeing there? And also, maybe help us think through just the ARPU of sort of a traditional maintenance sub versus the subscription subs? Thanks.

Sure, Phil. As we look at the trend on the subscriber adds we saw in Q1, the previous quarter, for the first time, roughly a balance between the net subscriber adds that were coming in from maintenance versus those coming in from the new model. And in the quarter, we disclosed they continued to be strong. So the new model sub adds that are – they're just two big elements inside our subscription adds, new model and maintenance. The new model sub adds continue to be strong, both year-on-year and sequentially. When you look at the maintenance adds for the last quarter, they actually come in two pieces, too. Renewals, so existing maintenance and then new maintenance sold attached to new perpetual license sales. Renewal rates stayed strong and then on the new sales the attach rates stayed strong. What we're seeing, though, that a little bit of downward pressure on the new maintenance adds is really a different pattern this year versus what we saw last year. Last year when we announced the end of sale of upgrades we saw a pretty linear path of customers buying those upgrades throughout Q2, Q3 and Q4, about the same each quarter. What we're seeing this year is the customers that are going to buy perpetual license at the end of the sale are more back-end loaded. We saw this with the test that we ran in ANZ where it was closer to the end of the actual end of sale in Australia and New Zealand that, that buying activity took place. And we've said all along we think this is going to be a back-end loaded year because of that and that's really the trend that we're seeing inside the subscriber adds.

Then talk about the difference in...

In ARPU?

Yes.

Yes. When you look at ARPU, of course, the overall blended ARPU of those two types is quite different. And even within each type it's very sensitive to whether you're talking about a desktop subscription for LT versus a desktop subscription to PrDS. So it's blended to such a level that it's hard to glean a lot of intelligence at the summary level. But when you look between just the average price of a desktop versus the average price of maintenance, a good example would be AutoCAD and an annual maintenance there sells for between 15% and 20% of the SRP of the new license versus a desktop license for a year would sell at about 40%. So, using that as an example, it's roughly half.

Got it. So in other words you did a higher mix of your higher ARPU subscribers as far as the new adds this quarter?

Yes. That's correct.

Oh, terrific. I wonder if you could go back through, you talked about the growth in long-term deferred revenue and you had talked about seeing some long-term contracts with maintenance and something about some dynamic around the renewal of maintenance. Can you just walk us through what drove that growth in long-term deferred revenue on maintenance?

Yes, sure. Carl mentioned in his opening commentary, we had a strong quarter for multi-year maintenance sales. And so you know what drops in the long-term is anything that's deferred beyond 12 months, and when you sell multi-year there's a bigger component to that than normal. So that's what's driving a bit of an outsized growth. The deferred revenue in total was quite strong, up about $80 million sequentially quarter-on-quarter, driven by what we just said, the higher mix of our sales coming in ratable models versus up front. And then within those ratable models most of your maintenance was strong. And so that dropped an element in the long-term versus current.

And, Steve, what really drove it was we offered a discount for people who were paying up front for multiple years before we announced the elimination of that discount, and so people wanted to get in on it, at least some of it, before that offer expired. So it drove a little bit of business.

Sort of a bump in multi-year.

Yes. It just drove multi-year. It didn't drive subscriber count and had no effect on revenue essentially.

Well, that's the other interesting point is that when you add a multi-year, it's still just one subscriber, so it boosts the billings line, it doesn't necessarily bump the subscriber line.

Okay. And then I was going to ask about the desktop subscription traction you're getting in the channel. What percentage of that is LT? I mean roughly, I'm not looking for a number.

Yes. It's the largest individual piece.

Yes. And it matches the product mix. I mean the one thing I would say about adoption of desktop subscription, just to step back a little bit, is I won't particularly say any industry or product line is any more inclined to do it or not. It seems like our customers are endorsing the move to the new model, and it's pretty consistent across the board.

All right. Thank you.

Great. I had two questions, if you don't mind. The first one, I'm just I guess trying to reconcile again the comments about the transition kind of accelerating with subscription adds showing up of only 61,000 in the quarter. I mean, I know we don't have a ton of history with that, but I'm just trying to reconcile that comment, if you could give some color there? And then secondarily, I noticed obviously you guys started giving out annualized recurring revenue. And I know that the definition of that is in the glossary, but the 55% that you're showing, the recurring revenue in the table that you have, if we just take subscription revenue I think and divide it by your total revenue, that's about 52% I think of revenue. So is that ARR if we were to try and translate that into numbers? Is that about, I don't know, $18 million or $20 million higher than what your subscription revenue line is showing? I'm just trying to get a sense of what you want us to do with that number besides look at a percentage that's growing. And I want to make sure I'm translating it into dollars appropriately. Thank you.

Sure, Heather, sure. On your second point, the reason we start to give that out is as we go through the transition and we're in this somewhat hybrid state where we're selling both new model types and perpetual license types, obviously the faster we make the transition, the more people that buy the new model types, the faster recurring revenue, both on an annualized basis and in any given quarter will trend. And so that's the point of providing that and we'll spend more time talking about this...

No, no. I know why you're providing it. It's not about why you're providing it. How are we supposed to interpret the 55%? Is that annualized recurring revenue, the 55% you're pointing to, I'm just trying to confirm, is it 55% of the $613 million that you reported, which compares to your subscription revenue, which is about 52% I think off the top of my head of the total? I mean, I'm just trying to get behind the number because...

Sure. You are. It's actually 55% of the $610 million that we reported, but that's right. You're thinking about it...

Yes. Okay. Perfect. Okay. And then to the first question?

Yes. On your first question, the – I'm sorry, do you want to...

No. Go ahead, Scott.

So, the acceleration that we're talking about again is the acceleration of the transition. And so what you see within the subscriber adds is both new model adds and old model adds, if you want to think of maintenance that way. The new model adds continue to accelerate and so the growth right there both year-on-year is huge. Even it's strong sequentially for the new model adds. And that's why you see us taking actions like going to end of sale in LT in APAC at the end of this quarter everywhere except Japan and we'll announce next week when we hit end of sale for perpetual on suites. So that's the acceleration and that's what is showing up in the subscriber adds.

And the one other comment that we put in there that may have been slightly too obtuse was this idea that what we're seeing with these end of sales is that people are not buying – they're not taking advantage of it until late in the promotion. And so for example, the opportunity on some of these things to attach maintenance to, they're not availing themselves of it. And so I think we will see some unevenness in these numbers on both the maintenance, old maintenance and new subscription as we go through the next two quarters and into next year before we terminate the program. So there'll be a little bit of volatility there and it's behavior that we're at this point really not that good at predicting. We've never gone through this transition of doing the end of sale of either the individual licenses or the suites. So it's a one-time phenomenon. I think all of us will be slightly imperfect at predicting that.

Thank you.

Sure.

Hi and thank you. Carl, with respect to the termination of the suites, just to be sure we understand what you're saying, you are moving it up from the end of fiscal 2017 as previously planned and so in effect, you've decided to have a rip the BAND-AID moment off, the way Adobe decided to do three years ago. They originally started with a longer transition period in mind and then of course they went to do it much more quickly. So you are in effect doing something similar now. Is that what you mean to do next week?

Yes. I mean, so in essence, you're right. I'm not sure we've ever exactly announced what it was, but I think we certainly intimated it clearly enough. And yes, I think what we saw, we wanted to make sure that both our customers and our channel partners were ready for this transition, and we started out with a model of this that enabled us to take longer to do it than folks like Adobe did. And what we've seen is a willingness, a huge willingness on the part of our customers to use this new model. In many ways, it's much more favorable for them. And then secondly our channel partners, which we told you were always very vulnerable if we did the rip the BAND-AID off in the beginning, are successfully transitioning their businesses and their customers through this. And so just like many of you, and I can't tell you how many of you have told me, why don't you rip off the BAND-AID? Yes, we're going to have a rip the BAND-AID off moment, and we'll give you the details on it next week and then we can certainly talk about it a month from now when we all get together. But that was exactly what it was about, and in many ways, this is really beneficial for us. It is non-trivial to run the two things simultaneously. Also we've just in terms of reporting financially, it makes some of the results somewhat confounding. Just, how does this go up and not this go up? And all this does is it accelerates that transition for customers, resellers and certainly for the financial community. And so earlier next year than we had previously planned, we come out of that and start seeing also the economic benefits of that as well.

You've alluded now a couple of times to the readiness of the channel. To the extent that you do accelerate the business model transition, would you necessarily accelerate the change in the channel model itself, in other words the agency or fee model that we've talked about a number of times? Would the two necessarily go hand-in-hand, as you've also alluded to in the past?

Yes, I mean as you know we are constantly adjusting the channel model. At the very least, it's an annual phenomenon around here. And much of it is kind of carefully planned with the other programs that are in place and in consultation with our partners. And so we've worked really closely with them and many of the things that we think were appropriate for the beginning of the transition we've put in place and we've talked about them before, and as we get towards the end of the transition, we'll move through to those things that we said were coming. So I think every part of it has to move together to make sense. And so with the acceleration of the announcement of the end of sale, along with it go channel programs and incentives and a number of other things.

All right. If I could maybe just squeeze one more in, you alluded to focusing on unattached or non-maintenance paying customers. Setting LT aside, are you referring specifically to the upgraded but not attached base that was part of the 2.9 million, that famous number from the Analyst Meeting last year?

Yes, yes. The famous 2.9 million.

Right. But...

That's exactly it.

Well both, Jay. I mean, we'll focus on that LT base as well, right? So the goal will be to, in addition to acquiring new customers with the new models, which we're doing nicely, will be to progressively go after that legacy base, LT and non-LT.

And one of the things that has been a very pleasing upside is just because of the price points and the difference in characteristics amongst our LT customers, we were more anxious about them and the new model transition, and if anything, the adoption there has been as strong as in any other part of the portfolio. And I think we mentioned the one place that we're nervous, which is Japan, which is certainly meaningful in terms of LT, but when you look at, for example, the other industrialized countries, Western Europe, United States, we just don't see much difference there. And fortunately, that simplifies the programs and allows us to do more things holistically. And yes, in a way that makes sense and is easier to communicate to everybody. So we're just going to continue to do that and we're really pleased to see the LT customers coming along.

Yes, and the upside there, of course, is LT had the lowest attach rate previously. When we sold our perpetual, it had the lowest attach rate of maintenance, and so seeing that LT customer set move to desktop gives us a chance to bring them along with us and to pull them in as subscribers.

Okay. Thank you.

Okay. Thank you very much, and good afternoon, guys. So you had a pretty big uptick, actually a very big uptick in subscription billings, up 52% year-over-year but I was hoping, Scott, that you could parse this a little more for us. Can you tell us how much of this growth roughly came from greater end market customer acceptance of your subscription program as opposed to a lengthening in terms just by virtue of the increase in multi-year subs that you referenced?

Yes. It was both but, of course, the size of our maintenance base is so much bigger, just the base that we've built up over the last 10 years. The number from a pure number standpoint it overwhelms, but we saw strong growth both – crazy growth year-on-year in the new models but strong growth sequentially. But multi-year maintenance also drove a big chunk of that subscriber billings upside and that's just a function of the size of that install base moving.

Okay. Thanks. And then maybe just one for Carl; if you could sort of talk about what you're seeing in terms of activity levels on your eStore, and just when do you expect that eStore could become material for you guys? Thanks.

Yes. I mean, the eStore at this point is becoming material. I mean, we're getting to the point we'll start reporting, maybe we'll start giving you some insight into it, but it is becoming a sizable portion of the business. And I'd say one way to think about it is there's our eStore, but there's just electronic distribution and sales that includes many partners all the way from folks like CDW, Dell and Amazon all the way to our traditional partners doing online distribution. So electronic sales and distribution is becoming more important. Our eStore, we continue to sell it at this price. So it is a reference marker out there but many people just buy for convenience through there and it's growing substantially. And so quite a good point to take away is we're preparing for Investor Day and talk a little bit more about the electronic channel. But they're clearly the wave of the future and in particular, as we look at many of our new products, many of them are almost exclusively through the electronic channels or at least starting out more even with our traditional channels.

Great. Thank you.

Great. Thanks. Scott, I wonder if you could talk about the rental uptick you're seeing and how that may differ or not in manufacturing vertical versus the AEC space?

Walter, we're not seeing a big – Carl touched on this earlier. We're not seeing a big difference in the uptake rate either by product or by industry vertical at this point. I mean, I guess if you look at it by geo, you might see a slightly slower uptake of the new model types in Japan. But holding that aside, we really are seeing a pretty consistent uptake in the new – the desktop subscription model, which is the rental model, across product lines and across segments.

Got it. And then, Carl, you're buying this, the company on the Internet of Things side and it just seems if I put myself in your place, you guys have quite a bit going on. I guess how do you avoid getting distracted here with a big business model transition and you're now entering a new market, it seems like that could be a risk.

Yes, I mean, well, one of things I'll say, we do acquisitions all the time, kind of routinely. But if you want to step back for a minute and just look at Autodesk in general, there are two big things we're doing. The first one is the business model transition. We've spent a lot of time in the prepared remarks as well as already on the Q&A talking about lots of that and I'm sure we will continue for the next number of months. What sometimes gets lost with all the conversation about that is that we were probably in the biggest transformation in the engineering and design software space we've ever seen, so as big as mainframe to workstation or workstation to PC, the shift of engineering software moving to the cloud is as big and more inevitable than any of those other transitions. And the alternative to doing acquisitions like SeeControl is to miss out on big parts of the market and we just look and say, well we want to come out of this as not only a more sustainable, less volatile model on the business we have today, we wholly expect to be the leaders in cloud computing for engineering and design and one of the ways to do that is to continue to develop stuff internally, the other is through acquisitions, and whether it's stuff we're doing with PLM 360 or BIM 360 or what we'll do with the Internet of Things, on that side, we think that's really important. And I would at least urge you to look at both the lack of competitive movement there. Most of our competitors don't think the cloud is that important for their customers. They're making half-hearted to nonexistent attempts to do anything about it. It's a bury your head in the sand kind of strategy. So when you look at it, they are, particularly in legacy business, whether in PLM or anything else. So we've let these things like the Internet of Things or moving CAD or PLM or CAM to it as being a critical part of what Autodesk looks like a handful of years from now.

Yes, and, Walter, the other thing I would just add to that, because your question was about distraction, I don't see Internet of Things as a net new segment for us. It fits very much hand-in-glove with where we're headed in manufacturing, and where we're headed in AEC. So it's more of an adjunctive to a couple of pretty strategic segments we are already in, than it is something that's net new that we're adding to the plate that we now have to build entirely different structures for.

Yes. I think some others in the market have positioned it as a new segment. I think Scott is absolutely right, and if you just break it down a little bit, I don't know anyone building commercial buildings nowadays who are not thinking about instrumenting and monitoring their buildings to improve the efficiency of running their operations. And whether that's a commercial real estate or industrial space such as a factory, or a power plant, everybody is doing it. I think very few people are designing new products that aren't number one, enhanced by Internet of Things technology. And I think most everybody is trying to collect data and analyze it so they can build better products for the future. And so this is really kind of the foundation of technology to get that started, and we certainly have more work to build into a business. But I think it dovetails exactly with our existing businesses.

Great. Thank you.

That concludes our call today. As Carl mentioned, we have our Analyst Day, September 29 here in our Gallery in San Francisco. If you're interested in attending, please email or call me. You can get my contact information on the press release. Thanks.