PTC INC. Q4 FY2024 earnings call

• Customers emphasize shortening development timelines with high quality, and PTC's core offerings address this. • Product portfolio focus areas: PLM (Windchill), ALM (Codebeamer), SLM (ServiceMax), CAD (Creo), and SaaS. • Implemented go-to-market changes including hiring a new Chief Revenue Officer, realigning selling/marketing/customer success around five key verticals (industrial products, federal, aerospace and defense, electronics and high tech, automotive, medical technology and life sciences). • Announced a $2 billion share repurchase authorization to enhance shareholder value. • Invested in R&D despite challenging macro, with non-GAAP R&D expense expected to have a 11% four-year CAGR from fiscal 2021-2025.

In Q4, PTC achieved 10% constant currency ARR growth in CAD and 13% in PLM. Regionally, constant currency organic ARR growth was solid across Americas, Europe, and APAC in the low to mid-double digits. Revenue contribution by product segments: PLM driven by Windchill, ALM by Codebeamer, SLM by ServiceMax, CAD by Creo, and focus on SaaS.

• Fiscal 2025 constant currency ARR growth expected to be 9%-10%, with Q1 at approximately 10.5%. • Free cash flow guidance for fiscal 2025 is $835 million to $850 million, absorbing ~$20 million outflows for go-to-market realignment. • Intend to buy back approximately $300 million of common stock in fiscal 2025 starting this quarter. • Fully diluted share count expected to be approximately flat in fiscal 2025.

• Potential near-term disruption associated with the go-to-market realignment, though measures are in place to avoid meaningful stumbling blocks.

Q: Ken Wong asked about go-to-market disruption, when peak disruption would occur and growth rate.

A: Neil Barua said they've taken steps to prevent disruption but recognize some friction may occur, and guidance is set with room for short-term disruptions. Kristian Talvitie added guidance is set conservatively considering potential impact.

Q: Daniel Jester asked about product pillars' performance, specifically ServiceMax and Codebeamer.

A: Neil Barua mentioned strong performance in PLM and CAD, Windchill momentum, Codebeamer expanding with automotive customers, and ServiceMax with a large crane manufacturer customer.

Q: Saket Kalia asked about Western Europe's customer spending and 2025 demand.

A: Neil Barua said they had some deals push out or get smaller in Q4 but see urgency in automotive verticals in Germany and need for digital transformation, with technology underpinning change.

Q: Joseph Vruwink asked about go-to-market change timing and compatibility with potential macro improvement.

A: Neil Barua said teams are underway with account plans and assignments, ready to take advantage of incremental demand if macro improves.

Q: Adam Borg asked about other verticals and ARR mix.

A: Neil Barua talked about federal, aerospace and defense having backlog, med tech with acquisition-driven product development needs, and ARR mix: industrial ~20s%, FA&D ~15%, electronics and high tech ~15%, automotive ~low teens%, med tech ~low teens%, non-core ~15%.

Q: Jay Vleeschhouwer asked about digital thread adoption across verticals and automotive exposure.

A: Neil Barua said automotive exposure is different with Windchill and Codebeamer focusing on software-defined vehicles, and digital thread adoption is an area to promote across verticals.

Q: Andrew Obin asked about uncertainty post-election and go-to-market realignment impact.

A: Neil Barua said they're focused on customer needs and ready for changes, with go-to-market realignment adding conservatism to guidance.

Q: Jason Celino asked about ARR growth guide change.

A: Kristian Talvitie said it's conservatism around potential impact of the go-to-market realignment.