Q4 2020 PTC Inc Earnings Call

October 28, 2020

[music].

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the PTC 2024th quarter Conference call.

During todays presentation, all parties will be in a listen only mode.

The presentation the conference will be open for questions.

But now it depends the call over to Tim Fox Ptcs Senior Vice President of Investor Relations. Please go ahead.

Thank you well good afternoon, everyone and thank you for joining Ptcs conference call to discuss our fourth quarter and fiscal year 2020 financial results.

On the call today are Jim Heppelmann, Chief Executive Officer, and Christian Pelletier, Chief Financial Officer before.

Before we get started we'd like to acknowledge that a table from our press release became public and we're currently looking into how this happened in the meantime of course, the full set of earnings documents are available on Ptcs Investor Relations Web site.

Now moving on to today's call. Please note that our comments, including forward looking statements, including statements regarding future financial guidance. These forward looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these factors is contained.

Ptcs filing with the FCC, including our annual report on form 10-K, and quarterly reports on form 10-Q. As a reminder, we will be referring to operating and non-GAAP financial measures during today's call.

Discussion of our operating metrics and the items excluded from our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures are included in our earnings press release and related form 8-K.

References to growth rates will be in constant currency, unless otherwise noted and lastly, I will be referencing our prepared remarks document which is in presentation form today, which you can find posted on our IR website with that let me turn it over to Jim.

Thanks, Tim.

Good afternoon, everyone and thank you for joining us I Hope you and your families continue to stay safe and well during this crisis.

Before jumping into our quarter and year end review I'd like to begin by sharing several pieces of new news that we announced earlier this afternoon.

Turning to slide four.

We're very pleased to announce the PTC and Rockwell automation have extended our strategic partnership by two additional years.

Cemented the alliance in place through fiscal 2003.

We have also broaden the partnership beyond I OTN. They are to include PLM and on shape.

Back in May Rockwell acquired Calypso, a professional services company, who has been a strong PLM and aiotv partner of PTC for years Calypso gives rockwell increased capabilities to pursue digital thread initiatives. So the scope of our agreement has been broadened to embrace those pursuits.

The agreement has other changes that better encouraged sales cooperation gift PTC access to rockwell's emulate three D factory simulation software and naturally contemplates continued growth through fiscal 23.

The alliance has expanded our reach and our capabilities as intended.

Providing rockwell with access to best in class industry 4.0 software technology.

The agreement as loud PTC to address significant white space in the market Rocco.

Rockwell has introduced PBC technology into more than 250 sizable companies across 45 countries to date and 70% represent new logos to PTC.

Rockwell has quickly become one of Ptcs biggest and most important partners.

Blake, whereas the chairman and CEO of Rockwell automation shared my view that this extension is a big win for both companies.

Turning now to slide five we also announced earlier today that we will be hosting a virtual investor day on December 15th.

We will be reviewing our strategy.

Secular growth drivers in our markets.

A broad solutions portfolio and how were taken those solutions to market.

Christian will also review progress of our very attractive financial model.

Given that that upcoming event, we plan to keep this call focused on Q4 and fiscal 2000 results and on fiscal 21 guidance. We hope you can join us for the event in December.

With that I'd like to turn to slide six and spend a few minutes, describing what we see as the three key elements of our strategy to deliver long term shareholder value.

It starts by aligning with market demand. So we can build a strong pipeline then.

Then optimizing new and renewal sales and customer success to power the topline or our growth.

Finally, creating an efficient business model and operation that allows PTC to drive the bottom line free cash flow growth even faster.

This will be Ptcs, new framework for describing our business strategy operations and results here as we head into fiscal 21.

First on market demand.

Fiscal 20 will no doubt be remembered as one of the most unique in challenging times PTC has faced over a 35 year history.

I fundamentally believe we'll look back at the last fiscal year as a pivotal moment for PTC pit.

Pivotal in the sense that our suite of software solutions, which had been driving significant value from customers before the pandemic have now become even more mission critical.

Years back we had anticipated a growing need for the types of capabilities PTC has been investing in but coal that has certainly accelerated demand for them.

Digital transformation initiatives across the industrial space are accelerating as companies adjust to this new normal way of doing business.

The importance of solutions that enable work from home global team and supply chain collaboration remote asset management.

Remote frontline worker training and support have never been higher.

For PDC this translates into more demand for PLM for Aiotv for Aer and process.

What we're seeing in our pipeline, which stands at record levels confirms that PTC is in a strong position.

Regarding the topline necessity is the mother of invention and work from home has pushed PTC to dramatically accelerate our digital marketing and sales capabilities.

I'm very pleased to report that we delivered strong Q4 bookings up from the previous high watermark in Q4 of 19, which is even more impressive when you consider the state of the global economy, and the fact that our sales teams were constrained to virtual operations.

I feel like we've made more progress adopting digital go to market in the last six months than in the previous five years.

With the subscription transition in the real Veer Amir we have successfully crossed the proverbial valley of death and are back to record levels of Aer are in revenue.

Now, we're enjoying the top line stability and the higher rates of growth and higher margins that led us to undertake that difficult five year journey.

As proof fiscal 20 marked the third consecutive year of double digit our growth for PTC. Despite the extreme volatility of PM eyes, and the macro environment that occurred during that same timeframe.

Now more than 90% of our revenue is software and 98% of that software revenue was recurring.

I'm. So pleased with this outcome. It came just in time for Covance.

Finally in the bottom line category, our EPS and free cash flow were both above guidance.

As Christian will detail a little later, our fiscal 21 free cash flow guidance represents another new high watermark for PTC.

This is driven by strong or our growth in the passing of several short term free cash flow headwinds that held us back in fiscal 20.

But are now fading as we go into fiscal 21, allowing our true earnings power to shine through.

Altogether bdcs very fortunate to have industry, leading technology that is well aligned with secular growth drivers.

Vastly improved digital go to market capabilities.

And in a sustainable inefficient recurring software business model.

With that let me turn to slide seven and touch on a few key financial highlights.

Our our of 1.27 billion represents growth of 14% or 11% at constant currency, which was the midpoint of our guidance range.

To put the COVID-19 impact into context fiscal 28, our growth was about 500 basis points below our pre cove. It internal plan due to bookings pressures and modestly elevated churn, resulting from the pandemic.

At this point, we see a smaller 200 basis point headwind to fiscal 21, our growth and as of now no headwind to fiscal 2002 and beyond.

Overall, we're very pleased with our fiscal 20 financial results and excited about our fiscal 21 guidance yet I believe the PTC is positioned to do even better in coming years, there's a lot of shareholder value creation that lies ahead of us.

With that as context, let's take a look at the respective contributions of the F. SG core and growth business segments of our portfolio.

Moving to slide eight.

You will see that our our growth declined modestly in our FSD business, but was strong in our much larger core business and accelerated in our fast growing growth business right.

Recall that our focus solutions group, which we position as a lower growth cash cow has exposure to industry is heavily impacted by COVID-19 in particular retailers and airlines.

Our fs GE products remain very competitive and were expecting as GE to recover to low single digit growth again in fiscal 21 as economic conditions in those segments improve.

At the same time, we're very pleased with the 11% growth of our core business, which continues to materially outpace the market growth rate.

Q4 was the 12 consecutive quarter that our core or our growth rate has been in double digits.

Meanwhile, our growth business had a very strong quarter and year with growth trending back to the levels, we want to see.

Thingworx Vuforia and on shape all posted impressive results in Q4, but vuforia non shape have really been strong all year.

It's worth noting that our our of our growth business has now surpassed that of FSC, which creates a tailwind of growth for the entire portfolio.

Let's go a click deeper into the main elements of our core and growth segments.

Turning to slide nine our CAD team delivered a solid quarter with air our growth in the high single digits.

Across Geos APEC once again delivered strong results and the overall demand environment improved sequentially in the Americas and stabilized in Europe.

Overall academy renewals remain healthy with churn improving quarter over quarter.

We're excited to be launching the next release of Creo seven in the coming months, which incorporates our first Atlas based offering.

Creole generative design extension or Gtx as we call it.

Leverages, our Rustom generative design technology with the compute offloaded to appear SaaS Atlas environment from where it has served to both Korea and on shape.

Also in this next grill release, we will be launching the mainstream high fidelity simulation capabilities from Ansys fully integrated with Creo, creating another highly differentiated leg of growth for our cat business.

Speaking of Ansys, we had solid results from Creo simulation life, our CAD solution that Embeds real time simulation from Kansas, which delivered its second highest bookings quarter. Today, we continue to see interest across a wide variety of verticals like automotive medical device industrials and in the high Tech space.

On slide 10, we highlight a great hi Tech CSL win with Nvidia.

This is a classic example of how traditional design and simulation processes impact time to market.

Creole simulation live provides Nvidia engineers with real time control of design direction.

Allowing a more refined design handoff to analysts, resulting in reduced rework faster time to market and improved work processes.

We're pleased with CSL is traction in the market and look forward to launching new marketing programs in the coming quarters.

Moving on to slide 11 in our PLM business, you will see that PLM continued to deliver strong performance with mid teens or our growth in Q4 and for the full year.

In fact, the PLM team beat their pre coated sales goal for the full year.

From a geographic perspective in Q4, PLM performance was broad based with double digit growth across all three major geographies led by the APAC region.

From a vertical perspective, our PLM team continues to win big in medical device space and in Andy.

Turning to slide 12, a great proof point in the life Sciences Arena was a major competitive displacement at Baxter International.

What started as a point solution opportunity for product requirements management expanded into a full blown digital thread enterprise engagement.

Baxter was operating with disparate independent systems and processes, which was negatively impacting regulatory cycle times.

By adopting Ptcs broad suite of Windchill, PLM solutions Baxter's consolidating its footprint into a single enterprise system and transforming from document centric to part centric processes, resulting in a 4500 seat competitive displacement.

You'll see on slide 13 that we had a great win at Te connectivity in this case T. He was using a highly customized incumbent system for technical document distribution.

By leveraging thingworx navigate and seamlessly integrating with windchill PLM and other enterprise systems T. He will deliver content to 20000 users across functions like purchasing supply chain planning and manufacturing planning.

Moving onto our growth business I'll begin with I O T on slide 14.

While I O T. A R. R was impacted in fiscal 20 from the new logo headwinds we described earlier in the year.

We were pleased to see Aiotv bookings doubled sequentially in Q4, which benefited from some pent up demand following macro slowdowns midyear, but also benefited from a number of significant wins in the quarter.

Once again, the standout coyote vertical in the quarter was medical device industry, which has experienced less economic disruption during the crisis.

We also had very strong performance in the Americas with bookings more than doubling sequentially.

We were also pleased to receive further validation of PTC strong aiotv market position by the industry analyst community.

Just last week PTC was named a leader in the 2020, Gartner Magic quadrant for industrial Iot platforms. This.

This is a particularly special award given gartners rigorous an in depth evaluation process and the strong influence that Gardner has in our market.

On Slide 15, we have an example of Thingworx in action that Stanley Black <unk> Decker one of the most venerable manufacturing brands in the industrial tool and hardware markets.

Stanley has been on a multi year digital transformation journey with PTC and we were pleased to expand this relationship in Q4.

Leveraging thingworx applications to expose data across previously disconnected assets Stanley is driving significant improvements in Oh E.

Overall equipment effectiveness across their global manufacturing footprint.

Turning to slide 16, Bridgestone is another FCO customer that's had great success, leveraging thingworx analytics, the embedded machine learning engine to provide real real time insights into his production environment to drive operational efficiencies improved throughput and improved quality all at scale.

Let me shift to our our business on slide 17.

The Vuforia augmented reality team delivered very strong results in Q4 with bookings up 50% year over year.

The air team landed a nice seven figure deal and the largest deal to date in Europe. We also saw a significant increase in the number of six figure deals with 18 in the quarter doubling the previous high watermark.

The large deal acceleration is a testament to the success of our up sell strategy.

Customers are starting to adopt our entry level our solution before you Chuck and then identifying more sophisticated air use cases, which we addressed with Vuforia studio and before your expert capture these.

These advanced solutions are tailor made for the remote work situation that our industrial customers are currently navigating.

We had two notable wins in Q4 that highlighted the broader value.

Or the value of our broader HR suite. The first on slide 18 is at Jabil, a major global contract manufacturing company with 260000 employees in 30 countries.

Chaebol operates in a highly competitive market where margins are paramount.

One of the biggest cost inputs is of course human capital, So finding new transformative solutions to improve onboarding and training and increasing frontline worker efficiency can have huge returns PD.

Pdcs air team leveraging existing CAD and PLM relationships at Jay will introduce the Vuforia suite to their manufacturing team and landed a seven figure aer starter deal.

Turning to slide 19, a second great success story in the quarter was with Nordics, one of the world's leading wind turbine manufacturers.

As the COVID-19 pandemic unfolded Nordics was planning to ramp new production capacity in India.

However, the cobot related travel restrictions kept the German based technical experts grounded, which stalled the commissioning of new production facilities by.

By leveraging Vuforia expert capture local technicians recorded training instructions in context, then automatically publish that content the headsets and mobile devices used by the production teams on the ground in India.

Turning now to slide 20, I'll wrap up my comments on a growth business by discussing on shape, which delivered another strong quarter as they wrapped up their first year as part of the PDC family.

On shape had a record quarter with bookings up more than 80% year over year and with 70% growth in new logos.

During fiscal 20 on shape landed over 700 competitive displacements the majority coming from Solidworks.

I see this is clear evidence of the disruptive nature avant shape SaaS based solution and what has been a competitive mature market within Trent entrenched incumbent players.

The investments, we're making in on shapes global market expansion is starting to pay off early dividends in Europe, which is a large market for design software.

The PTC reseller channel while still early in its on shave journey is gaining traction and opens up another exciting vector of growth for the onsite business.

Lastly on on shape I'd like to update you on the exciting trends, we're seeing in the education market.

On Slide 21, you will see that education sign ups during the back to school season have been growing nicely for years, but they have literally exploded this year due to Covance, let me explain why.

Mainstream CAD systems run exclusively on Windows workstations, but students generally have Mac books chromebooks or ipads.

So schools have always been forced to provide a special PC computer room on campus for any cat related work.

Because of the pandemic most schools now require work from anywhere solutions. So they are increasingly turning to on shape, which runs on any of the devices students typically have.

Schools are realizing that they don't even need the expensive PC room anymore. So I don't see that situation reverting.

Winning in education is really important because students represent the workforce of tomorrow, winning them over while setting the bar at a new level has proven to be a winning long term sales and marketing technique in the cat industry.

We believe the rapid adoption of on shape in education provides a template for SaaS adoption to follow in the commercial market.

Our manufacturing customers have the same needs for real time collaboration and access to data from anywhere and on any device.

I believe that Covance crisis is accelerating the SaaS tipping point for the engineering software industry by several years.

Bottom line is that one year into it on shape looks to be another excellent acquisition.

To wrap up on our growth business I think it's pretty clear that the cobot crisis has only amplified long term growth opportunities for PTC.

Let me provide some color on geographic performance.

On Slide 22, you will see that APAC had strong performance with a our growth of 14%, reflecting the earlier reopening of those economies and much healthier churn rates on subscription licenses, particularly in China, where our subscription model seems to be gaining a foothold.

Americas are our growth of 11% was driven by mid teens, PLM growth and strong growth across our our sweet, but partially offset by softness in Fs Jay.

Europe Air our growth of 8%, while benefiting from solid PLM performance lagged other regions, primarily because of the higher mix of CAD and pressure on new logo activity and I know team.

Before I wrap up let me turn to slide 23, and touch on our other key alliance partner I've already spoken of the strength of the Rockwell and Ansys alliances, but our partnership with Microsoft had another strong quarter with.

With bookings increasing around 20% from Q3 with.

With momentum building in Europe, which comprise 30% of the bookings in Q4.

With a solid pipeline heading into 521 and field engagements strengthening across the globe, we remain bullish on the Microsoft Alliance opportunity.

To wrap up and summarize turning to slide 24, we're seeing strong demand from secular drivers like digital transformation work from home the need for remote monitoring solutions for asset management remote support a frontline workers and growing interest in Psas were in the right place at the right time we've.

Executed well during a challenging environment delivering solid air our growth and record bookings to close out the year.

Our subscription transition is complete with a return to record a ARR and revenue and EPS by 20.

And we're expecting a free cash flow inflection in fiscal 21 with continued strong free cash flow growth thereafter.

We're confident that by aligning with market demand to build a strong pipeline.

Improving our execution to convert that pipeline to robust air our growth and leveraging scale and business model efficiencies to drive even higher free cash flow growth is a recipe that will continue to create significant shareholder value for years to come.

With that I'll turn it over to Christian who will take you through more details on the financial results and guidance.

Thanks, Jim and good afternoon, everyone before I review our results I'd like to note that I'll be discussing non-GAAP results and guidance and all growth rate references will be in constant currency.

Let me start off with a brief review of our fourth quarter and full year results and then spend the balance of the call on our outlook for fiscal 21.

Turning to slide 26 figure.

Fiscal 20, A.R.R. of 1.27 billion increased 14% year over year or 11% on a constant currency basis, which was at the midpoint of guidance.

As Jim noted earlier, we had very strong bookings performance in Q4 and consistent with recent trends, we did see an uptick in ramp deals with.

We believe reflects a level of cost.

Customer conservatism on the pace of their software deployment plan given the current.

Environment.

The takeaway here is that even though our strong book.

Bookings outperformance didnt represent a meaningful change to fiscal 20 A.R. it contributed to backlog in future periods, primarily fiscal 22 and beyond.

Fiscal 20, new HCV grew 10% despite a year over year bookings declined in the high single digits.

Due to the backlog we had entering the year.

Churn of 8.6% was slightly higher than expected.

Fiscal 20 free cash flow of $214 million was slightly ahead of guidance.

Note that free cash flow for the year includes approximately $52 million of restructuring and acquisition related payments as well as approximately $8 million of incremental interest paid before we retired the $500 million of 6% notes back in May.

It's also worth pointing out that interest payments on our bonds are now in our second and fourth quarters well previously they were in our first and third quarters.

Fiscal 20 revenue of $1.46 billion increased 17% year over year and was above guidance.

Driven by 27% recurring revenue growth.

As we've discussed previously revenues impacted by sea sick, so six and related business policy changes for example in Q4 contract durations were slightly longer than forecasted and we had stronger than expected conversions, both of which positively impacted the amount of upfront.

Option revenue recognized in the quarter.

FX was also a modest revenue tailwind.

Full fiscal 20 operating margin of 29% increased approximately 870 basis points over fiscal 19, and lastly, EPS of $2.57 increased almost 60% year on year.

Turning to page 27, I'll begin with our balance sheet we.

We ended fiscal 20 with cash and marketable securities of $335 million.

And 1.02 billion of gross debt, including $1 billion of senior notes and 18 million outstanding on our revolving credit facility.

Note that that outstanding balance of $18 million was paid down on October 27.

We believe that this is an attractive and stable capital structure, especially in light of the current economic backdrop.

Also please note that for your financial modeling that beginning in fiscal 21, we have adopted a calendar quarter and financial reporting.

Now turning to guidance.

On slide 28, we highlight a few of our key guidance assumptions.

In essence based on Q4 performance and current outlook for 21, we're expecting the macro environment to remain stable in the near term with conditions improving in the second half of the fiscal year.

So with that as context, and turning to slide 29, we.

We're expecting fiscal 21 A.R.R. of 1.39 to 1.42 billion, that's a growth rate of 9% to 12% on a constant currency basis.

And regarding a our seasonality we would expect the growth rates to be fairly consistent each quarter throughout fiscal 21.

Free cash flow is expected to be approximately $340 million for the full year growth of approximately 60% year over year.

As we've said previously fiscal 21 free cash flow growth benefits from reduced interest restructuring and acquisition related payments.

And regarding the linearity of free cash flow in fiscal 21.

We expect to generate more than 60% of our annual free cash flow in the first half as collections are stronger in the first half will be offset by expenses, increasing as we ramp hiring throughout the year.

We expect Q1 free cash flow north of 100 million.

With the incremental revolver debt paid off.

And free cash flow accelerating we plan to address the stock repurchase program with our board at our upcoming Board meeting in November.

And as a reminder, fiscal 21 free cash flow includes approximately $15 million of restructuring payments related primarily to the headquarter relocation as well as to the cost actions. We took early in fiscal 20.

Now turning to the PML guidance.

We're expecting fiscal 21 revenue of 1.55 to 1.6 billion, that's a growth rate of 6% to 10%.

The decline in the revenue growth rate relative to fiscal 20.

Is related to the impact of ASV, six six and related business policy changes that benefited revenue growth last fiscal year. It has no impact on our free cash flow as we continue to bill customers annually upfront.

On the expense front.

We're expecting operating expense growth of approximately 10% in fiscal 21.

We plan to start filling open headcount roles.

At a more normalized pace.

After hitting the pause button last year, while tightly managing expenses throughout fiscal 20.

We also expect other expenses like travel to increase.

As the global economy.

Reopens and we also expect some increase in variable compensation expense.

Non-GAAP EPS is expected to be $2.65 to $2.85.

That's growth of 3% to 11%.

So.

Wrapping up.

We had solid financial performance in fiscal 20, we delivered our third consecutive year of double digit A.R.R. growth, while maintaining discipline on our expense structure.

And we are successfully navigating a very challenging macro environment.

We begin fiscal 21 in a strong position to continue driving attractive top line growth and very strong free cash flow growth.

With that I will turn the call over to the operator to begin QNX.

Thank you to ask a question you'll need to press star one on your telephone.

With CCI question press the pound key season.

Please limit yourself to one question only if you have additional questions. Please return to the queue.

Our first question comes from Jay Bray, Charlotte with Griffin Securities. Your line is now open.

Yes. Thank you good evening, Hey, good evening.

Jim Let me start with you.

To ask about what I think are still the two largest sources of revenue for you.

Namely your cat active base and your PLM active base.

And this is an industry trend question over the last couple of years.

There's been a very interesting phenomenon with creo.

Growing as quickly in terms of its active base.

As your principal peers have been doing.

Lagging.

Are your peers growth as far as active base is concerned. So you are now with the rest of the group in that respect.

In the mid single digits for Creo base growth and so the question is how are you thinking about the growth from here in the active base for Creo and then similar question for for Windchill, which has also been growing its base. It seems in about the mid single digits would you expect.

Some acceleration in 21 and beyond.

In the in the base and then for Christian you since you referred the hiring that can't help but ask about that.

It's been very clear that you're you're open recs are well up from the trough back in the spring.

Particularly for sales and service and R&D, maybe walk us through how you're thinking about that we are opening of the hiring aperture.

In terms of functions and goes and what it might mean for Opex growth.

Okay, Jay ill take the first part of that so we.

We showed last November wasn't when we had our Investor day, we showed a model that said if our.

Bookings for CAD and PLM were to be flat then over the course of five years, our growth rates will slow down from that low double digit number to the kind of upper single digit.

Almost mid single digit growth rate of the industry. That's.

Thats if the if the bookings numbers are flat, but I think we do see an opportunity to do better than flat we're.

We're winning.

We have very strong competitive products, we have new things to sell for example in Korea, we have the Creole simulation live and pretty soon now the whole Ansys suite behind that we have this generative design stuff. We have a are augmented reality technology is built into both creo and windchill. So I mean, I think we feel like in the near term.

Arm, we could slow down a bit in the next couple of years.

But I think then once you get to the mid term you know this Atlas project could be a real tailwind for growth. So I think that scenario that we showed last fall of slowing down to market growth probably won't happen because I think that.

This Atlas SaaS application, we call it upgrades on Winchell will actually be a growth driver.

Using this Atlas platform, that's kind of.

Shared with launching.

So we'll talk more about that naturally in the November timeframe, but I think when you look at our growth rate.

Versus others and you know one of our European peers reported results that were materially weaker than ours.

I think we have really strong competitive products I think we're in better verticals.

For example, aerospace and defense is really defense for us in a strong way we're in the medical device Arena.

We have a business model that's a terrific you know it doesn't leak so much as it.

As others, who don't have a recurring revenue model like we do so I think there's just a collection of advantages that are allowing us.

For the third consecutive year, and frankly forecasted into next year to continue to grow at rates materially higher than the than the balance of the market we compete against.

We'll take that question.

This part seven okay.

Nine.

Our nine.

I think if you just put out a report was a yesterday or two days ago that laid out all the headcount like I don't even understand what the question is I have to go to you to get the data on our own hiring.

Well no I.

I guess a quick question is good yeah, let me turn to articulate it this way.

We are continuing to invest in the business.

There is a fair amount of.

Call. It go to market related which includes customer success sale.

Sales.

Marketing resources.

And additionally.

Jim talked a lot about some of the future technology.

Technology, that's being developed.

Obviously requires talent as well so you know R&D.

Talent is really the also a large pool of hiring for us.

For the for the year.

I think.

At the same time.

We are cognizant of whats going on in the world around us and we're.

You know, we've got plans to hire them throughout the year, but I think we will maintain flexibility as well depending on how.

The macro environment continues to evolve and how that impacts us.

In the short term, but that's generally what we're trying to hire as.

Folks that can build cool products for our customers and folks who can help customers extract value from that yes, I think to let me add when you look at our Opex increase in fiscal 2001, and it seems higher than you might expect but but frankly a lot of that is just cost that fell out of 20 because of Covance. We're.

We're allowing room for it to come back end. So let me give an example, we spend $40 million to $50 million, a year and travel and that just went to zero.

So most of the fight 20 had zero travel, but we're assuming in F. Y 21 that you have we'd be back calling on customers and stuff like that and that would ramp. So a lot of a lot of the cost increase makes more sense. If you take the two years and average them right. If you take that two or 3% opex growth.

In fact, 20, and the 10% and 21 yen. It together you get less call. It 13, okay averages six and a half will six and half makes sense against the guidance of 9% to 12% growth. That's the way I look at it. It's it's not so much that we're spending a lot more but that we're returning some of the spend or actually planning for some.

On the spend to come back as we go into F 121.

Yes.

Thanks very much.

Thank you.

Next question comes from Saket Kalia with Barclays. Your line is now open.

Okay, Great Hey, guys, Thanks, Hey, Christian Hey, Jim Thanks for taking my question here.

I'll just I'll just keep it to one Tim maybe maybe for you.

How does how do the aiotv in Aer businesses sort of trend towards the end of Q4 and if you do you think you can sort of comment here at the beginning of Q1, I guess exiting last quarter it sounded like.

Just like everybody else, so it's kind of difficult to sell into some of your end customers just because of things like factory closings. So curious how things sort of evolved at the end of Q4 and how they are sort of looking now.

Well, let me tell you when we started Q4, the what we call the beginning of quarter forecast had heading.

Had a what we call a wedge in it.

Versus a hedge and I'm sorry, it had a hedge versus awareness in that line meaning.

We were actually taking it down from the roll ups and saying the roll ups look nice coming from the field, but.

You know, we have the scope and thing going out there and we should be conservative, but actually the roll ups were higher than than the forecast on what happened throughout the course of the quarter as we raised the forecast four times.

Internally. So I think we saw building strength throughout the quarter. It wasn't just like a hail Mary pass at the end, although frankly, a lot of business didn't come in at the end, but you know we had raised the corridor or raise the forecast.

Three times in the month of September alone prior to the last week. So I think we just saw building strength and yeah. A lot of it was I don't see any are but frankly, a lot of it was a PLM as well I mean, we had a bang up PLM quarter, but we also had very very good I don't see any our quarter.

Got it makes sense thanks, guys.

Thanks.

Thank you. Our next question comes from Jason Sorry, not with Keybanc capital markets. Your line is now open.

Hey, Thanks, guys.

On the question here.

So we've talked a little bit about the funnel or though for aiotv and any are it seems like it's really ticked up at least beginning an endemic.

And you and it looks like Q4 things are back on track.

Maybe can you talk about how we should think about sales cycle.

What is the typical sales cycle look like now that things might be opening up without any different.

Yes, I think most of our.

Our sales cycles are less than two quarters, and then most of our aiotv sales cycles tend to be more three and four.

Because it's a it's a kind of bigger and more complex enterprise.

System, it's a system of record it requires some amount of implementation and weaving into the the physical side of the business and so forth. So.

Let me just say, though the IOTV pipeline is good and the our pipeline is fantastic and part of the planes and some of those sales and marketing resources are going to is to make sure. For example, and they are that we can actually keep up to that pipeline because there's so much interest and our competitive advantages. So strong I mean, if you go look.

The Magic Quadrant type reports, which will show you in.

In December if you haven't seen them recently I mean, we are miles ahead of everybody in this field of industrially are and there's just huge level of interest. So we just want to make sure were in place actually to execute on it because.

You know again that interest will hang around forever. If we don't services, so that's where some of the investments going.

Great. Thank you okay. The one.

Thank you. Our next question comes from Adam Block with Stifel. Your line is now open.

Yeah, Hey, Dot hi, guys and thanks for taking the question maybe.

Maybe just two quick ones for me first one Jim maybe a bigger picture question. So nice to see the Rockwell partnership being extended another two years.

Great. If you could comment on maybe the one or two focus areas for the partnership but this year and how you're thinking about that that playing out and then maybe just a question. So obviously you're talking about 100 basis point of improvement next year.

Some worsening trend this year, maybe talk about what are the low hanging fruit or what are the drivers of the churn improvement. Thanks. So much.

Yes on the Rockwell contract just to add a little more color I mean, we extended that early because you know both salespeople and customers want certainty that by the time a campaign complaints since the partnership still in full force right. I mean, you wouldn't want to start to three quarter sales cycle.

Well in the back half of the year, if that contract wasn't extended I really get it just to take any fear out and because it's a great partnership and we're both committed to it.

There were some other changes we want to make while we had the Hood open you know for example, throwing some more products in there and so forth.

But the real thing once it's a great partnership, let's not scare anybody by letting it come to close to the sudden here, where it looks like it might expire.

So where are we gonna focus I think it's the same place we've been focusing you know Rockwell huh.

It has some real momentum with our products and they're really selling them into their strong suites, you know their food and beverage their north American automotive they're.

Various different materials and oil and gas probably has a little more challenged at the moment, but it's.

It's really Rockwell, taking our technology into their very large.

Customer base, and you know really doing the smart factory kind of thing.

Where the AD software. This I don't see any our type of software to all the other products that Rockwell has both software and hardware and really build the whole smart factory strategy. So I think thats, where we'll continue to focus it doesn't represent a change.

Adding PLM and on shape I think is.

It's interesting I don't I don't think that will become central to the to the partnership it really isn't I don't see any our partnership but they see some opportunities around.

On shape.

We showed some examples of how you can use on shape for factory design.

During our Liveworx presentation during my keynote.

And then for PLM, you know the half appear lumpy ability not as quite impressive in calypso and they see some opportunity as they want to be able to go after.

Hey, Adam it's Christian so on the churn question I think first I'd start off by saying.

Relative to last year in fiscal 20, we only saw about a 100 basis point degradation in churn, which I think in general speaks to the very sticky nature of the software that we sell right in the end the value that customers are getting from it and frankly you.

Even.

A significant piece of that increase was really down to.

A couple of customers larger customers that were known churn that went into this year. So.

Point number one being we don't.

We didnt really see any meaningful change in churn activity as a result of the pandemic at least not yet.

Number two as we were talking earlier about the hiring plans.

One of the things that I mentioned was customer success that is one area that we are going to be continuing to invest in.

And we expect that that will also have a positive impact throughout the year.

And then additionally.

Additionally, we started late this or late in fiscal 20 actually offering.

Multiyear renewal terms.

The customers, which previously had not been a policy. It is one of the policies, we talk about assay thixo six and the related business policy changes that that's another example of business policy change, which we believe also would.

Continue to help.

Reduce churn so when we talk about a 100 basis points of churn improvement Thats really just getting us back to.

Last year's levels.

We think thats an achievable target.

Great. Thanks, so much.

You bet.

Thank you. Our next question comes from Matthew Broome with Mizuho. Your line is now open.

Hi, Thanks, very much Hi, Hi, Hi, Jim and Tim and congrats on the results by the way I'm sorry, just on the Rockwell a partnership will also be increasing the number of quota carrying reps assigned.

Selling PTC solutions and then.

Well to be any changes the PTC sales organization now that it sounds like you will be selling more of our OCO sometime.

Yes.

So let me say you know rockwell's our earnings call as a next week or maybe even when we go after and I'd I'd, probably prefer to defer to them, but let me say certainly the price.

Partnership contemplates strong continued growth and normally associated with strong continued growth one would continue to make.

Go to market investments, but let me defer that question to them. So I don't steel in either.

Yeah.

And then on the PC side I mean, I think we are what we really have gained access to is this emulate three D. I don't think thats central to what we're trying to do but I think we are interested in trying to figure out how to better integrate that went on shape and you know at least haven't has a.

As a weapon in the Arsenal, but I don't I don't think we're going to pivot hard toward that I think we have a.

More pipeline than we can keep up with in CAD PLM DNA are and non chain. So.

But anyway, it's a weapon in the Arsenal that we can pull out if a if we find the right opportunity and we've certainly seen such opportunities overtime. You know this company emulate threed at Rockwell acquired actually had been on our acquisition list too. So it's it's technology, we're interested in but we got a lot on our plate at the same time, so we'll we'll.

Call on it Opportunistically.

Okay makes sense.

Very much.

Thank you.

Thank you. Our next question comes from Joe billing with Baird. Your line is now open.

Hey, Joe Greg, Greg Hi, everyone I, just wanted to maybe talk about the recent bookings and buy or bad.

And as we have maybe God and the forecast for fiscal 2021, I don't know a month or two ago, what would have been different about it. So in other words. It sounds like your internal plan had moved up as the quarter went on that you're getting some recovery in pieces of the business that work.

Negatively impacted and applied plenty that all seems to be good at the same time, we might be about to revisit it in by our men with certain economies close I thought it could have an impact on the on new bookings activity. So I'm, just wondering kind of the puts and takes in arriving at our our growth.

9% to 12%, which is kind of a similar number Chris and I. Thank you are you already have been talking about at the beginning of September just the give and take and how you think about up by 21.

Okay. Joe Let me this is Jim let me take a high level, let's call. It qualitative pass at this and Christian if you want to add any quantitative number.

Numbers to it you can.

In the case of F. SG.

Thats a business where for example, one of the Big properties is servigistics spare parts management and airlines is the is the largest industry we sell into one of the largest so thats had some pressure you know as airlines were in deep trouble and whatnot.

I think.

If we see a modest low single digit improvement in air our four Servigistics area.

Let's say for all of FSC.

FSD will still be down versus 2019, right. So we're not really expecting miracles. There. We're just saying we see some things happening that will be slightly helpful.

Now as you go to the rest of it.

The real thing is the pipeline you know first of all we've become much better at managing the pipeline and right now we have a very operate very optimistic looking pipeline and not just for Q1, I mean really for the whole year and really for each of the main segments CAD PLM loyalty and they are and really for each of the main geography. So.

We have a lot of pipeline now we don't have a crystal ball as to what could happen with Goldman.

Lockdowns could hurt although honestly, we feel like we're locked down and I think most of our customers feel to me like they're locked down already I mean their production people are showing up to work in the factories, but the people were selling to really a pretty much working from home.

More lets say on the knowledge worker side of the business. So.

So I don't know what locked down so I mean, I kind of think were in lockdown mode. Yeah restaurants are open, but that's fine we're not selling the restaurants were selling a manufacturing company.

So I don't know what that will mean I think Christian was clear, though that you know our assumption.

Is that life will be kind of like it is now in the near term and improving somewhat in the back half of our year if.

If if cove it does something radical.

And is radically different than that yeah. Okay. We're going to have to have a different set of assumptions, but we're only working with you know kind of what we have.

Yes, I don't I mean.

I would add to that Jim Okay, unless there's a specific question Joe that you're trying to get it.

No no just looking for more color if I can squeeze one more and and it goes back down to a comment you made that are at the very beginning.

No we don't see your backlog it but it sounds like Theres actually a pretty high amount of visibility in the backlog just given some of the lamp deal structures.

That gives you confidence and the question you talked about this year being a 500 basis points departure from plan.

Next year or 200 basis point departure, and non acquired 22 are.

Having no departure so is.

Is that.

Yeah, Let me let me let me, let me link those comments the backlog.

I was really talking about backlog as I look forward to 21 and beyond.

What I said is.

There's a.

200 basis points or two percentage points headwind to our growth and EPS by 21, which is contemplated in our guidance by the way right.

Really because the backlogs down.

Entering the year.

But if you look at the backlog for the year after that it's right where it should be.

In part because of the booking strength, we saw particularly in the fourth quarter. So right now we don't have a flight 22 deficit in our backlog chart, but we do have one that will cost us about two points in in F y 21.

Points of growth you can run the math, that's what the that's what the backlog differential is.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from NGL, then with Bank of America. Your line is now open.

Good afternoon.

Hello, Andrew.

Just a bigger picture question, I guess, just sort of talk about adding sort of apples functionality.

Korean when shell so.

As you sort of think over the next couple of years, what does the investment cycle what does the rollout.

Look like.

No one should peak when should it start moving the needle in terms of the numbers.

Because we've been getting a lot of questions on that particular actually.

Yeah, I mean, we're going to give you a little more insight again in in December, but let me kind of just paint the highest level picture you know, we think the industry's going to SaaS and with on shape, we're leading the charge, but we'd like to bring our customer base, that's on Creo and windchill along for the ride. So we're saying what if we developed.

Using the Atlas criminal if you will or architecture avant shape, what have we developed versions of Creo and windchill event.

Acted a lot like on shape in terms of being through multi tenant multi user SaaS, but at the same time. We're compatible so that you can do a lift and shift of an on premise deployment into the SaaS cloud now.

No that will take us a couple of years to build to be Frank because if you're talking about compatibility then you need pin for pin for pin feature capability right. We're not we're not talking about building a new product with limited functionality, we're really talking about full on versions of Creo and windchill. So that you could lift the production employment shifted into.

The SaaS cloud and never Miss a beat.

When it's there why it's interesting is because that lift and shift typically doubles they are.

Because a subscription on premise seat generally doubles in value when it becomes a subscription SaaS seat because you saved the servers and the administration and the upgrades and lots of different things. So I think you should model that kind of in the in the back half of a five year window and well beyond by the way.

I think it's something that would probably run for I don't know could be a decade.

And you know, but it will take us a while to get it going so I'm not counting on anything there in 21, and probably not even anything in 22, you know and we'll keep you posted we got lot of work to do.

Just a follow up question on site access so you did highlight that.

You started seeing.

Better results in industrial activity in September.

How related was it to actually being able to gain side access to your customers.

And are you seeing any impact, particularly in Europe.

From sort of that our sense of Blackstone's in Europe in terms of actual site access.

Well the the lockdown in Europe of course happened just lately. So I wouldn't have seen that in Q4, and then again.

But I think it was helpful. Now you know we didn't have a pickup in Europe, but the real pickup was in the U.S.

And you know.

We were able to re engage customers and customers send people back into their plans to get these projects going and so forth and.

It was it was based a lot on.

On the expansions, but also we called out.

Some real interesting new wins competitive wins, where a company said, okay lets get this initiative going and and make a selection and get back to work. So.

So we did see some of that in Q4.

Again, the interest level in our loyalty software remains very high and what happened in the fourth quarter as the close rate went up.

To a more kind of a normal normalized close rate.

Then we were seeing let's say in Q2 and Q3.

Greg Dunham from thanks for answering my questions. Thanks, a lot.

Thanks.

Thanks Keith.

Our next question comes from Sterling Auty routine P. Morgan Your line is now open.

Yes, Thanks, Hi, guys, you mentioned improvement in pipeline mens.

Here is what were the changes that you've made that drove the improvement and now that you're in the new fiscal year. One of the biggest changes that you've made to the sales and go to market most of this fiscal year.

Yeah, well on the pipeline thing about a year ago, we hired a chief pipeline officer.

Which really was somebody whose job it is to really watch the pipeline and make sure we're doing the right things to build it out so.

This chief pipeline officer maintains a six quarter rolling view of the pipeline by segment by Geo by sales channel you name. It. So at any point in time, you know I have a dashboard that says how does the pipeline look for CAD in Europe three quarters from now I can tell you that and there is a goal for how cat in Europe.

Three quarters from now should look as compared to what is the forecast or the plan for cat in Europe three quarters from now so we really have a level of data that is unprecedented here at PTC and therefore, we have a level of proactiveness. This unprecedented because we know for example, we might say.

PLM in Japan is soft four quarters out get on it we need to run some marketing promotions, we need to do this we need to do that well.

We also know where to put resources. So you know in terms of hiring and whatnot and we've done a lot of hiring for example in the Aer. Because this pipeline is so big and we're worried about whether or not it'll age out and disappear if we can't tend to it.

Let me say going into the year on in terms of go to market configuration, no big changes.

No big New players no big reorganizations, it's really just keep doing what we're doing because it's working pretty well came off the best quarter sales, we ever had and a and it's working well you know to link sales and marketing in a in a digital go to market motion.

We learned a lot in the last year it wasn't wasted at all in that respect.

Yeah, just adding on that I mean, I think the go to market teams have done a remarkable job of figuring out how to.

You know leverage a virtual virtual selling environment, right and actually adapt and thrive in it. So I think that will be a complimentary model going.

Going forward a much more efficient you know I think you all know this but if you if you travel with airplane tickets and rental cars and hotel rooms to make sales calls you don't get that many sales calls made and.

To the extent you can do that through a video call. It very very productive and we came up with some really interesting ideas. For example, weve shifted our customer experience center, which was designed for customers to come to into more like a broadcast studio. So that we could do high quality events with the customer on line.

Fine, but us not not living rooms at home, but actually like you're watching the TV news practically I mean, it looks really impressive and then if you're there it looks kinda strange because you realize it's a studio, but we're doing things like that that really.

Make it a much more powerful scalable and efficient go to market model I really I really want to stress.

For years I was pushing.

So a question for selling to be more digital.

And you know it was art, but it's suddenly got very easy and in everybody embraced it because the options were taken away.

Yes, exactly thank you guys I appreciate it.

Yes. Thank you.

Thank you. Our next question comes from Rich Valera with Needham and company. Your line is now open.

Yes. Thank you.

Hi, guys. Thank.

So Jim when you were talking.

Back in the I guess sort of mid fourth quarter.

You talked about the pipeline for for your hair products be multiples of historical levels I think at that point. It maybe wasn't clear what your close rates, we're going to be on this very strong pipeline and based on how the quarter turned out it sounds like maybe they started to accelerate were pretty good. So just wondering can provide any color on sort of BA our pipeline build up you know where it is.

Dan first historical and then maybe what you've learned and how you've.

It started to close on on that pipeline.

Yeah, well rich I mean, if you've been in the round enterprise software for a while you know that kind of like rule of thumb is that for every dollar you Havent forecast you ought to have $3 in the pipeline and sometimes it's still win sometimes is for.

If you have numbers that are closer to 10.

It tells you something intelligent you know you don't have enough capacity or you're not qualifying enough.

Or you have chronic problems or I mean, whatever so it also tells you have low close right.

Right because if you didn't take the forecast up and you sit there with all that coverage somehow you buy mathematically you're not doing an effective job closing that pipeline. So we have very high levels of coverage and they are I mean and by the way in Entre counts very hot and so we are trying to both understand what it takes to.

Increased the close rate and we made some progress, but it isn't near about three to one ratio.

But we're also bringing in more resources. So we're making good progress and it led to pretty good results all of last year, especially in Q4 last year and we have a strong plan for Aer. This year I mean this is a business. It's a hyper growth business. It has some real legs and we're pretty excited about and just trying to figure out how to make sure we don't leave anything behind.

Oh, great interest for Christian quick clarification, the reason, you're able to close that 200 basis point headwind growth headwind in F. 22 is because of the ramp deals is that right why youve got that the 200 basis point headwind of 21, but not yet plenty to just wanted to clarify that.

Yeah, and I think we tried to articulate that a lot of the over performance that we saw in.

Even in Q4 realm.

Relative to our original forecast.

Actually created backlog.

Primarily for fiscal 2002 and beyond so it's yes, its ramp deals going out that going out that far as customer, yes, Let me, let me just stepping through that if if.

If a sales rep closed the deal late in Q4, and it was around a little bit in the first year that more in the second one in the third.

Well if they closed in Q4 of the start date is almost certainly in Q1.

And then the ramps would typically ramp on the anniversary of the start date. So that deal closed in Q4 of 20 get nothing for 20.

It will do a little bit for 21, and a lot for 22, and possibly even more for 23 I mean, that's how these ramps work. So what we're saying is that.

We have a 2.22 percentage points against the billion Twoish billion to 50, you'll hear our 25 million.

On Air Gap, if you will in pipeline going into fiscal 21.

But if you say well how does the pipeline look for fiscal 22 compared to how it should look right now the answer is it looks fine.

Makes sense, thanks, gentlemen.

Yep.

Thank you. This concludes the question and answer session I would now like to turn the call back over to Tim Fox for closing remarks.

Thanks, dwell and everybody. Thanks for joining us today on the call PTC will be participating in nimble virtual events this quarter.

Posting those details on our Investor website, and we hopefully look forward to seeing you on the conference circuit or at our Investor Day on December 15th.

And once again, thanks for your interest in PTC and have a great evening.

Thank you everybody bye bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the P.T.C. 2024th quarter Conference call.

During todays presentation, all parties will be in a listen only mode.

The presentation the conference will be open for questions.

I would now like to tend to call over to Tim Fox Ptcs Senior Vice President of Investor Relations. Please go ahead.

Thank you well good afternoon, everyone and thank you for joining Ptcs conference call to discuss our fourth quarter and fiscal year 2020 financial results on.

On the call today, or Jim Heppelmann, Chief Executive Officer, and Christian College, <unk>, Chief Financial Officer.

Before we get started we'd like to acknowledge that a table in our press release became public and we're currently looking into how this happened in the meantime of course, the full set of earnings documents are available on Ptcs Investor Relations website.

Now moving on to today's call. Please note that our comments, including forward looking statements, including statements regarding future financial guidance. These forward looking statements are subject to risks and uncertainties and factors that could cause actual results to differ materially from those expressed or implied by such statements.

On one formation concerning these factors is contained the ptcs filing with the FCC, including our annual report on form 10-K, and quarterly reports on form 10-Q.

A reminder, we will be referring to operating a non-GAAP financial measures during today's call.

References to growth rates will be in constant currency unless otherwise noted.

And lastly, I will be referencing our prepared remarks document, which isn't presentation found today, which you can find posted on our IR website.

With that let me turn it over to Jim.

Thanks, Tim.

Good afternoon, everyone and thank you for joining us I Hope you and your families continue to stay safe and well during this crisis.

Before jumping into our quarter and year end reveal I'd like to begin by sharing several pieces of new knows that we announced earlier this afternoon.

Turning to slide four.

We're very pleased to announce the PTC and Rockwell automation have extended our strategic partnership by two additional years, which commenced the alliance in place through fiscal 2003.

We have also broaden the partnership beyond I OTN. They are to include PLM and on shape.

Back in May Rockwell acquired Calypso, a professional services company, who has been a strong PLM and aiotv partner PTC for years.

Calypso gives rockwell increased capabilities to pursue digital thread initiatives. So the scope of our agreement has been broadened to embrace those pursuits degree.

The agreement has other changes that better encouraged sales cooperation.

Do you see access to Rockwell emulate three D factory simulation software and naturally contemplates continued growth through fiscal 23.

The alliance has expanded our reach and our capabilities as intended.

While providing rockwell with access to best in class industry 4.0 software technology.

The agreement as loud PTC to address significant white space in the market Rockwell has introduced PBC technology into more than 250 sizable companies across 45 countries today and 70% represent new logos the PTC.

Rockwell has quickly become one of Ptcs biggest and most important partners Blake.

Blake, whereas the chairman and CEO of Rockwell automation shares my view that this extension is a big win for both companies.

Turning now to slide five we also announced earlier today that will be hosting a virtual investor day on December 15th.

We will be reviewing our strategy.

Secular growth drivers in our markets.

A broad solutions portfolio and how we're taking those solutions to market.

And we'll also review progress of our very attractive financial model.

Given the upcoming that upcoming event, we plan to keep this call focused on Q4 and fiscal 2000 results and on fiscal 21 guidance. We hope you can join us for the event in December.

With that I'd like to turn to slide six and spend a few minutes, describing what we see as the three key elements of our strategy to deliver long term shareholder value.

It starts by aligning with market demand. So we can build a strong pipeline.

Then optimizing new and renewal sales and customer success to power the topline growth.

Finally, creating an efficient business model and operation that allows PTC to drive the bottom line free cash flow growth even faster.

This will be PDC, a new framework for describing our business strategy operations and results here as we head into fiscal 2001.

First on market demand.

Fiscal 20 will no doubt be remembered as one of the most unique in challenging times PTC has faced over a 35 year history.

Fundamentally believe we'll look back at the last fiscal year as a pivotal moment for PTC.

But all in the sense that our suite of software solutions, which had been driving significant value from customers before the pandemic have now become even more mission critical.

Years back we had anticipated a growing need for the types of capabilities PTC has been investing in but call. It has certainly accelerated demand for them.

Digital transformation initiatives across the industrial space are accelerating as companies adjust to this new normal way of doing business.

The importance of solutions that enable work from home.

Global team and supply chain collaboration remote asset management.

Remote frontline worker training and support have never been higher.

For PDC this translates into more demand for PLM for Aiotv for Aer and for SaaS.

What we're seeing in our pipeline, which stands at record levels confirms that PTC is in a strong position.

Regarding the topline necessity is the mother of invention and work from home as push PTC that dramatically accelerate our digital marketing and sales capabilities.

I feel like we've made more progress adopting digital go to market in the last six months than in the previous five years.

With the subscription transition in the real Vera Mayer.

We have successfully crossed the proverbial value of death and are back to record levels of our AR and revenue.

Now, we're enjoying the top line stability and the higher rates of growth and higher margins that led us to undertake that difficult five year journey.

As part of fiscal 2000 marked the third consecutive year of double digit.

Growth for PTC, despite the extreme volatility.

Yes, and the macro environment that occurred during that same timeframe.

Now more than 90% of our revenue software and 98% of that software revenue was recurring.

Im so pleased with this outcome. It came just in time for carbon.

Finally in the bottom line category, our EPS and free cash flow were both above guidance.

As Christian will detail a little later, our fiscal 21 free cash flow guidance represents another new high watermark for PTC.

This is driven by strong growth in the passing of several short term free cash flow headwinds that held us back in fiscal 20.

But are now fading as we go into fiscal 2001, allowing our true earnings power to shine through.

Altogether bdcs very fortunate to have industry, leading technology that is well aligned with secular growth drivers.

Vastly improved digital go to market capabilities.

And in a sustainable inefficient recurring software business model.

With that let me turn to slide seven and touch on a few key financial highlights.

Our our of $1.27 billion represents growth of 14% or 11% at constant currency, which was the midpoint of our guidance range.

To put the COVID-19 impact into context fiscal 20, our growth was about 500 basis points below our pre coven internal plan due to bookings pressures and modestly elevated churn, resulting from the pandemic.

At this point, we see a smaller 200 basis point headwind to fiscal 21, our growth and as of now no headwind to fiscal 2002 and beyond.

Overall, we're very pleased with our fiscal 2000 financial results and excited about our fiscal 21 guidance yet I believe the PTC is positioned to do even better in coming years, there's a lot of shareholder value creation that lies ahead of us.

With that as context, let's take a look at the respective contributions of the SG core and growth business segments of our portfolio.

Turning to slide eight.

You will see that our our growth declined modestly in our FSD business, but was strong and our much larger core business and accelerated in our fast growing growth business.

Recall that our focus solutions group, which we position as a lower growth cash cow has exposure to industry is heavily impacted by COVID-19 in particular retailers and airlines.

Our MSG products remain very competitive and we're expecting MSG to recover to low single digit growth again in fiscal 21 as economic conditions in those segments improved.

At the same time, we're very pleased with the 11% growth of our core business, which continues to materially outpace the market growth rate.

Q4 was the twelveth consecutive quarter that our core or our growth rate has been in double digits.

Meanwhile, our growth business had a very strong quarter and year with growth trending back to the levels, we want to see.

Thingworx Vuforia and on shape, all posted impressive results in Q4, but vuforia and on shape have really been strong all year.

It's worth noting that our our of our growth business has now surpassed that of MSG, which creates a tailwind of growth for the entire portfolio.

Let's go a click deeper into the main elements of our core in growth segments.

Turning to slide nine our cat team delivered a solid quarter with higher growth in the high single digits.

Across Geos APAC once again delivered strong results and the overall demand environment improved sequentially in the Americas and stabilized in Europe.

Overall academy levels remain healthy with churn improving quarter over quarter.

We're excited to be launching the next release of Creo seven in the coming months, which incorporates our first Atlas based offering creo generative design extension or Gtx as we call. It leverages, our fresh generative design technology with the compute offloaded to appear SaaS Atlas environment.

From where it has served in both Korea and Don James.

Also in this next grill release, we will be launching the mainstream high fidelity simulation capabilities from Ansys fully integrated with Grail, creating another highly differentiated leg of growth for our cat business.

Speaking of answers, we had solid results from Creo simulation live our cat solution that Embeds real time simulation from Kansas, which delivered its second highest bookings quarter. Today, we continue to see interest across a wide variety of verticals like automotive medical device industrials and in the high Tech space.

On slide 10, we highlight a great hi Tech CSL win within video.

This is a classic example of how traditional design and simulation processes impact time to market.

Creo simulation live provides Nvidia engineers with real time control of design direction.

Allowing a more refined design handoff to analysts right.

Belting and reduced rework faster time to market and improved work processes.

We're pleased with CS sales traction in the market and look forward to launching new marketing programs in the coming quarters.

Moving on to slide 11 in our PLM business, you will see that PLM continued to deliver strong performance with mid teens or our growth in Q4 and for the full year.

In fact, the PLM team beat their pre cobot sales goal for the full year.

From a geographic perspective in Q4, PLM performance was broad based with double digit growth across all three major geographies led by the APAC region.

From a vertical perspective, our PLM team continues to win big in medical device space and in a Andy.

Turning to slide 12, a great proof point in the life Sciences Arena was a major competitive displacement at Baxter International.

What started as a point solution opportunity for product requirements management expanded into a full blown digital thread enterprise engagement.

Baxter was operating with disparate independent systems and processes, which was negatively impacting regulatory cycle times.

You'll see on slide 13 that we had a great win at Te connectivity in this case it was using a highly customized in common system for technical document distribution.

By leveraging thingworx navigate and seamlessly integrating with windchill PLM and other enterprise systems.

He will deliver content to 20000 users across functions like purchasing supply chain planning and manufacturing planning.

Moving onto our growth business I'll begin with I O T on slide 14.

While.

Our our was impacted in fiscal 20 from the new logo headwinds we described earlier in the year.

Once again, the standout coyote vertical in the quarter was medical device industry.

His experience less economic disruption during the crisis we.

We also had very strong performance in the Americas with bookings more than doubling sequentially.

We were also pleased to receive further validation of PTC strong aiotv market position by the industry analyst community.

Just last week PTC was named a leader in the 2020, Gartner Magic quadrant for industrial Iot platforms.

This is a particularly special award given garden is rigorous and in depth evaluation process and the strong influence that Gardner has in our market.

On Slide 15, we have an example of Thingworx and action that Stanley Black <unk> Decker one of the most venerable manufacturing brands in the industrial tool and hardware markets.

Stanley has been on a multi year digital transformation journey with BDC and we were pleased to expand this relationship in Q4.

Leveraging thingworx applications to expose data across previously disconnected assets Stanley's driving significant improvements in E.

Overall equipment effectiveness across their global manufacturing footprint.

Turning to slide 16, Bridgestone is another FCO customer that's had great success, leveraging thingworx analytics, the embedded machine learning engine to provide real some real time insights into its production environment to drive operational efficiencies improved throughput and improved quality all at scale.

Let me shift to our our business on slide 17.

For your augmented reality team delivered very strong results in Q4 with bookings up 50% year over year.

The large deal acceleration is a testament to the success of our upsell strategy.

Customers are starting to adopt our entry level our solution before you Chuck.

And then identifying more sophisticated and our use cases, which we addressed with before you studio and before your expert capture.

These advanced solutions are tailor made for the remote work situation that our industrial customers are currently navigating.

We had two notable wins in Q4 that highlighted the broader value or.

The value of our broader HR suite. The first on slide 18 is at Jabil, a major global contract manufacturing company with 260000 employees in 30 countries.

Jabil operates in a highly competitive market where margins are paramount.

Bdcs HR team leveraging existing CAD and PLM relationships at Jay will introduce the Vuforia suite to their manufacturing team and landed a seven figure aer starter deal.

Turning to slide 19, a second great success during the quarter was with Nordics, one of the world's leading wind turbine manufacturers.

As the COVID-19 pandemic unfolded Nordics was planning to ramp new production capacity in India.

However, the cobot related travel restrictions kept the German based technical experts grounded, which stalled the commissioning of new production facilities.

By leveraging Vuforia expert capture local technicians recorded training instructions in context, then automatically published that content, the headsets and mobile devices used by the production teams on the ground in India.

Turning now to slide 20, I'll wrap up my comments on a growth business by discussing on shape, which delivered another strong quarter as they wrapped up their first year as part of the PTC family.

On shape had a record quarter with bookings up more than 80% year over year and with 70% growth in new logos.

During fiscal 20 on shape landed over 700 competitive displacements the majority coming from Solidworks.

See this is clear evidence of the disruptive nature avant shape SaaS based solution and what has been a competitive mature market within trend in tranche incumbent players.

The investments, we're making in on shapes global market expansion is starting to pay early dividends in Europe, which is a large market for design software the.

The PTC reseller channel while still early in its on shave journey is gaining traction and opens up another exciting vector of growth for the onshore business.

Lastly, on Jay I'd like to update you on the exciting trends, we're seeing in the education market.

On Slide 21, you will see that education sign ups during the back to school season have been growing nicely for years, but they have literally exploded this year due to Covance, let me explain why.

Mainstream CAD systems run exclusively on Windows workstations, but.

Students generally have Mac books, chromebooks or ipads. So schools have always been forced to provide a special PC computer room on campus for any CAD related work.

Because of the pandemic most schools now require work from anywhere solutions. So they are increasingly turning to on shape, which runs on any of the devices students typically have.

Schools are realizing that they don't even need the expensive PC room anymore. So I don't see that situation to reverting.

We believe the rapid adoption of on shape in education provides a template for SaaS adoption to follow in the commercial market.

Our manufacturing customers have the same needs for real time collaboration and access to data from anywhere and on any device.

I believe that Covance crisis is accelerating the SaaS tipping point for the engineering software industry by several years.

Bottom line is that one year into it on shape looks to be another excellent acquisition.

To wrap up on our growth business I think it's pretty clear that the cobot crisis has only amplified long term growth opportunities for PTC.

Let me provide some color on geographic performance.

Slide 22, you will see that APAC had strong performance with our growth of 14%, reflecting the earlier reopening of those economies and much healthier churn rates on subscription licenses, particularly in China, where our subscription model seems to be gaining a foothold.

Americas are our growth of 11% was driven by mid teens, PLM growth and strong growth across our our sweet, but partially offset by softness in Fs Jay.

Europe Air our growth of 8%, while benefiting from solid PLM performance Lake other regions, primarily because of the higher mix of CAD and pressure on new logo activity and Aiotv.

Before I wrap up let me turn to slide 23, and touch on our other key alliance partner.

I've already spoken of the strength of the Rockwell and Ansys alliances, but our partnership with Microsoft had another strong quarter.

With bookings increasing around 20% from Q3 with.

With momentum building in Europe, which comprised 30% of the bookings in Q4.

With a solid pipeline heading into F Y 21, and field engagements strengthening across the globe, we remain bullish on the Microsoft Alliance opportunity.

Executed well during a challenging environment, delivering solid growth and record bookings to close out the year.

Our subscription transition is complete with a return to record a R.R. in revenue and EPS by 20.

And we're expecting a free cash flow inflection in fiscal 21 with continued strong free cash flow growth thereafter.

We're confident that by aligning with market demand to build a strong pipeline and.

Proving our execution to convert that pipeline to robust growth and leveraging scale and business model efficiencies to drive even higher free cash flow growth is a recipe that will continue to create significant shareholder value for years to come.

With that I will turn it over to Christian who will take you through more details on the financial results and guidance.

Let me start off with a brief review of our fourth quarter and full year results and then spend the balance of the call on our outlook for fiscal 2001.

Turning to slide 26.

Fiscal 20.

<unk> of $1.27 billion increased 14% year over year or 11% on a constant currency basis, which was at the midpoint of guidance.

As Jim noted earlier, we had very strong bookings performance in Q4 and consistent with recent trends, we did see an uptick in ramp deals.

We believe reflects the level of cut.

Customer conservatism on the pace of their software deployment plan given the current.

Environment.

The takeaway here is that even though our strong.

Bookings outperformance didnt represent a meaningful change to fiscal 20 are it contributed to backlog in future periods, primarily fiscal 22 and beyond.

Fiscal 20, new HCV grew 10% despite a year over year bookings declined in the high single digits.

Due to the backlog we had entering the year.

Churn of 8.6% was slightly higher than expected.

Fiscal 20 free cash flow of $214 million was slightly ahead of guidance.

It's also worth pointing out that interest payments on our bonds are now in our second and fourth quarters well previously they were in our first and third quarters.

Fiscal 20 revenue of $1.46 billion increased 17% year over year and was above guidance.

Driven by 27% recurring revenue growth.

As we've discussed previously revenue is impacted by sea sick, so sick and related business policy changes for example in Q4 contract durations were slightly longer than forecasted and we had stronger than expected conversions, both of which positively impacted the amount of upfront.

Option revenue recognized in the quarter.

FX was also a modest revenue tailwind.

Full fiscal 20 operating margin of 29% increased approximately 870 basis points over fiscal 19, and lastly, EPS of $2.57 increased almost 60% year on year.

Turning to page 27, I'll begin with our balance sheet we.

We ended fiscal 20 with cash and marketable securities of $335 million.

And $1.02 billion of gross debt, including $1 billion of senior notes and 18 million outstanding on our revolving credit facility.

Note that that outstanding balance of $18 million was paid down on October 27.

We believe that this is an attractive and stable capital structure, especially in light of the current economic backdrop.

Also please note that for your financial modeling.

Turning in fiscal 21, we've adopted a calendar quarter and financial reporting.

Now turning to guidance.

On slide 28, we highlight a few of our key guidance assumptions.

In essence based on Q4 performance and current outlook for 21, we're expecting the macro environment to remain stable in the near term with conditions improving in the second half of the fiscal year.

So with that.

Context, and turning to slide 29.

We're expecting fiscal 21 are of $1.39 billion to $1.42 billion, that's a growth rate of 9% to 12% on a constant currency basis.

And regarding our seasonality, we would expect the growth rate to be fairly consistent each quarter throughout fiscal 2001.

Free cash flow is expected to be approximately $340 million for the full year growth of approximately 60% year over year.

As we've said previously fiscal 21 free cash flow growth benefits from.

Reduced interest restructuring and acquisition related payments.

And regarding the linearity of free cash flow in fiscal 21.

We expect to generate more.

More than 60% of our annual free cash flow in the first half as collections are stronger in the first half.

Offset by expenses, increasing as we ramp hiring throughout the year.

We expect Q1 free cash flow north of $100 million.

With the incremental revolver debt paid off.

And free cash flow accelerating we plan to address the stock repurchase program with our board and our upcoming board meeting in November.

Now turning to PNM guidance.

We're expecting fiscal 21 revenue of $1.55 billion to $1.6 billion, that's a growth rate of 6% to 10%.

The decline in the revenue growth rate relative to fiscal 20 is related to the impact of ASV six six and related business policy changes that benefited revenue growth last fiscal year. It has no impact on our free cash flow as we continue to bill customers annually upfront.

On the expense front.

Were expecting operating expense growth of approximately 10% in fiscal 21.

We plan to start filling open headcount growth.

At a more normalized pace.

After hitting the pause button last year, while tightly managing expenses throughout fiscal 20.

We also expect other expenses like travel to increase.

As the global economy.

Reopened and we also expect some increase in variable compensation expense.

Non-GAAP EPS is expected to be $2.65 to $2.85.

Thats growth of 3% to 11%.

So.

Wrapping up.

We had solid financial performance in fiscal 20, we delivered our third consecutive year of double digit are our growth while maintaining discipline on our expense structure.

And we are successfully navigating a very challenging macro environment.

We began fiscal 21 in a strong position to continue driving attractive topline growth and very strong free cash flow growth.

With that I will turn the call over to the operator to begin QNX.

Thank you to ask a question you'll need to press star one on your telephone.

Jay question touched upon key please.

Please limit yourself to one question only if you have additional questions. Please return to the queue.

Our first question comes from Jay Vleeschhouwer with Griffin Securities. Your line is now open.

Yes. Thank you good evening, Hey, good evening.

Jim Let me start with you.

To ask about what I think are still the two largest sources of revenue for you.

Namely your CAD active base in Europe, PLM active space.

And this is an industry trend question over the last couple of years.

There's been a very interesting phenomenon with creo.

Growing as quickly in terms of its active base.

As your principal peers had been doing after lagging.

Your peers growth as far as active base is concerned so you're now in a way.

With the rest of the group in that respect.

Some acceleration in 21 and beyond.

In the in the base and then for Christian you since you referred to hiring that can't help but ask about that.

It's been very clear that you're you're open recs are well up from the trough back in the spring.

Particularly for sales and service and R&D, maybe walk us through how youre thinking about that we opening of the hiring aperture.

In terms of functions and goes and what it might mean for Opex growth.

Okay Jay.

Ill take the first part of that so we.

We showed last November wasn't when we had our Investor day, we showed a model that said our.

Bookings for CAD, and PLM, where to be flat then over the course of five years, our growth rates will slow down from that low double digit number to the kind of upper single digit.

Almost mid single digit growth rate of the industry. That's.

Thats if the if the bookings numbers are flat, but I think we do see an opportunity to do better than flat we're.

Winning.

We have very strong competitive products, we have new things to sell for example in Korea, we have the Creo simulation live and pretty soon now the whole Ansys suite behind that we have this generative design stuff. We have aer augmented reality technology is built into both Creo and windchill. So I mean, I think we feel like in the near term.

We could slow down a bit in the next couple of years.

But I think then once you get to the mid term. This Atlas project could be a real tailwind for growth. So I think thats scenario that we showed last fall.

Slowing down to market growth, probably won't happen because I think that.

This Atlas SaaS application, we call it upgrades on Winchester will actually be a growth driver.

Using this Atlas platform, that's kind of.

Shared with on shape.

So we'll talk more about that naturally in the November timeframe, but I think when when you look at our growth rate.

Versus others and you know one of our European peers reported results that were materially weaker than ours.

I think we have really strong competitive products.

I think we're in better verticals.

For example, aerospace and defense is really events for us in a strong way we're in the medical device arena.

We have a business model that's terrific it doesn't leak so much as.

As others, who don't have a recurring revenue model like window. So I think there's just a collection of advantages there are allowing us.

For the third consecutive year, and frankly forecasted into next year to continue to grow at rates materially higher than than the balance of the market we compete against.

And we'll take head count question.

His part seven okay.

Nine.

Our nine.

Asking if you just put out a report yesterday or two days ago that laid out all the head count I got on and understand what the question is I have to go to you to get the data on our own hiring.

Well no I.

I guess my question My question is.

Yes, let me turn articulate it this way.

We are continuing to invest in the business.

There is a fair amount of.

Okay and go to market related which includes customer success.

Sales.

Marketing resources.

And additionally.

Jim talked a lot about some of the future.

Technology, that's being developed that obviously requires talent as well so R&D.

Talent is really the also a large pool of hiring.

For us.

For the for the year.

I think.

The same time.

We are cognizant of whats going on in the world around us and we're.

We've got plans to hire them throughout the year, but I think we will maintain flexibility as well depending on how.

The macro environment continues to evolve and how that impacts us.

In the short term, but that's generally what we're trying to hire as folks.

We're allowing room for it to come back in so let me give an example, we spend $40 million to $50 million, a year and travel and that just went to zero.

So most of the fight 20 had zero travel, but we're assuming in fact 21 that we have we'd be back calling on customers and stuff like that and that would ramp. So a lot of a lot of the cost increase makes more sense. If you take the two years and average them right. If you take that two or 3% opex growth.

In fact, 20, and the 10% and 21 added together you get less call. It 13, okay averages six and a half will six and half makes sense against the guidance of 9% to 12% growth. That's the way I'd look at it. It's it's not so much that we're spending a lot more but that we're returning some of the spend or actually planning for some.

On the spend to come back as we go into 2021.

Yes.

Thanks very much.

Thank you.

Next question comes from Saket Kalia with Barclays. Your line is now open.

Okay, Great Hey, guys, Thanks, Hey, Christian Hey, Jim Thanks for taking my question here.

[music].

I'll just I'll just keep it to one Jim maybe maybe for you.

How does how do the aiotv in aer businesses sort of trend towards the end of Q4.

If you you said you can sort of comment here at the beginning of Q1, I guess exiting last quarter it sounded like.

Well, let me tell you when we started Q4, the what we call the beginning of quarter forecast had.

Had a what we call a.

Rich in it.

Versus a hedge I am sorry, it had a hedge versus awareness in that line, meaning.

We were actually taking it down from the roll ups and saying the roll ups look nice coming from the field, but.

We have the scope and thing going out then we should be conservative, but actually the roll ups were higher than than the forecast on what happened throughout the course of the quarter and we raised the forecast for thanks.

Internally. So I think we saw building strength throughout the quarter and wasn't just like a hail Mary pass at the end, although frankly, a lot of business didn't come in at the end, but we had raised the corridor arrays the forecast three.

Three times in the month of September alone prior to the last week. So I think we just saw building strength and yes, a lot of it was I don't see any IR, but frankly, a lot of it was PLM as well I mean, we had a bang up PLM quarter, but we also had very very good DNA our quarter.

Got it makes sense thanks, guys.

Thanks.

Thank you. Our next question comes from Jason Sorry, now.

[music] Bank capital markets. Your line is now open.

Hey, Thanks, guys.

Hi, My question here.

So we've talked a little bit about the final fair enough for Aiotv and and it seems like it's really take that at least at the beginning and that may.

And you and it looks like Q4 things are back on track.

Maybe can you talk about how we should think about sales cycle.

Now why is the typical sales cycle look like now that things might be opening up without any different.

Yes, I think most of our.

Our sales cycles are less than two quarters, and then most of our LTE sales cycles tend to be more three and four.

Because into its a kind of bigger more complex enterprise.

System and the system of record and require some amount of implementation and weaving into the physical side of the business and so forth. So.

Let me just say, though the pipeline is good and our pipeline is fantastic and part of the planes and some of those sales and marketing resources are going to is to make sure for example in aer than we can actually keep.

Keep up to that pipeline, because there's so much interest and our competitive advantages. So strong I mean, if you go look at the Magic Quadrant type reports, which will show you in.

In December we haven't seen them recently I mean, we are miles ahead of everybody in this field of industrial Aer and there's just huge level of interest. So we just want to make sure were in place actually to execute on it because.

You know again that interest will hang around forever, we don't services, So that's where some of the investments going.

Great. Thank you.

[music].

Thank you. Our next question comes from Adam Block with Stifel. Your line is now open.

Yes, Hey, guys, Hey, guys and thanks for taking the question maybe.

Maybe just two quick ones for me first one Jim maybe a bigger picture question. So nice to see the Rockwell partnership being extended another two years.

Great. If you could comment on maybe the one or two focus areas for the partnership for this year and how you're thinking about that that playing out and then maybe just a question churn obviously, you're talking about 100 basis point of improvement next year.

Often some worsening trend this year, maybe talk about what are the low hanging fruit or what are the drivers of the churn improvement. Thanks. So much.

Yes on the Rockwell contract just to add a little more color I mean, we extended that early because.

Salespeople and customers want certainty that by the time a campaign complaints since the partnership still in full force right. I mean, you wouldn't want to start at three corners sale cycle in the back half of the year after that contract wasn't extended we really get it just take any fear out and because it's a great partnership and welcoming.

Into it.

There were some other changes we want to make while we had to have an open for example, throwing some more products in there and so forth.

But the real thing once it's a great partnership, let's not scare anybody by letting it come to close to this on here, where it looks like it might expire.

So where are we going to focus I think it's the same place we've been focusing Rockwell.

Has some real momentum with our products and they are really selling them into their strong suites.

Their food and beverage their north American automotive they're.

Various different materials and oil and gas probably has a little more challenged at the moment, but.

It's really Rockwell, taking our technology into their very large.

Customer base, and really doing the smart factory kind of thing where they add software.

Yes.

Our type of software to all the other products that Rockwell has both software hardware and really build the whole smart factory strategy. So I think thats, where we'll continue to focus it doesn't represent a change adding PLM and on shape I think is.

Interesting I don't I don't think that'll become central to the to the partnership it really isn't I don't see any our partnership but they see some opportunities around.

On shape.

We showed some examples of how you can use on shape for factory design.

During our Liveworx presentation during my keynote.

And then for PLM.

Half of PLM capability now that's quite impressive in calypso and they see some opportunity as they want to be able to go after.

Hey, Adam it's Christian so on the churn question I think first I'd start off by saying.

Relative to last year in fiscal 20, we only saw about.

A 100 basis points degradation in churn, which I think in general speaks to the very sticky nature of the software that we sell right in the end the value that customers are getting from it and frankly even.

Even.

A significant piece of that increase was really down to.

A couple of customers larger customers that were known churn that went into this year. So.

Point number one being we don't.

We didnt really see any meaningful change in churn activity as a result.

Of the pandemic at least not yet.

Number two as talking.

Talking earlier about the hiring plans.

One of the things that I mentioned was customer success. That's one area that we are going to be continuing to invest in.

And we expect that that will also have a positive impact throughout the year.

And then additionally.

Additionally, we started late this or late in fiscal 20 actually offering.

Multiyear renewal terms to.

Customers, which previously had not been a policy is one of the policies and we talk about assay thinks so six and the related business policy changes that Thats. Another example of the business policy change, which we believe also would continue to help.

Reduce churn so when we talk about 100 basis points of churn improvement Thats really just getting us back to.

Last years levels, and we think thats an achievable target.

Great. Thanks, so much.

Yes.

Thank you. Our next question comes from Matthew Broome with Mizuho. Your line is now open.

Hi, Thanks, very much Hi, Hi, Hi, Jim can stand Sam and congrats on the results by the way I'm just.

So just on the Rockwell partnership will also be increasing the number of quota carrying reps assigned selling PTC solutions and then.

Well to be any changes to PTC sales organization now that it sounds like you will be selling more rocco sometime.

Yes.

So let me say Rockwell's earnings call is next week or maybe even the week after and I'd I'd, probably prefer to defer to them, but let me say certainly the.

Turning to ship contemplates strong continued growth and normally associated with strong continued growth one would continue to make.

Go to market investments, but let me defer that question to them. So I don't steal any of their and their thunder.

And then on the PC side, I mean, I think we.

We really have gained access to is this emulate three D. I don't think thats central to what we're trying to do but I think we are interested in trying to figure out how to better integrate that with non shape and.

At least haven't has a.

As a weapon in the Arsenal, but I don't I don't think we're going to pick at hard toward that I think we have.

More pipeline than we can keep up with in CAD PLM DNA, our non chain, so, but but anyway. It's a weapon in the Arsenal that we can pull out if if we find the right opportunity and we've certainly seen such opportunities over time.

This company emulates redeemed at Rockwell acquired actually had been on our acquisition list too. So it's it's technology, we're interested in but we got a lot on our plate at the same time, so we'll we'll.

Call on it Opportunistically.

Okay makes sense.

Thanks very much.

Thank you.

Thank you. Our next question comes from Joe ruling Baird. Your line is now open.

Hey, Joe.

Great Hi, everyone I just wanted to maybe talk about the recent bookings and by our bad.

And as we have maybe God and look for cats for fiscal 2021, I don't know a month or two ago.

What would have been different about it so in other words it sounds like your internal plan had moved up as the quarter went on you are getting some recovery and pieces of the business that were negatively impacted by 20 that all seems to be good at the same time, we might be about to revisit and environment wed.

Certain economies closing that.

Could have an impact on the on new bookings activity. So I'm, just wondering kind of the puts and takes in arriving at.

Our growth of 9% to 12%, which as kind of a similar number Chris and I. Thank you are you already have been talking about at the beginning of September just the give and take and how you think about up by 21.

Okay, Joe Let me just Jim let me take a high level, let's call. It qualitative pass at this and Christian if you want to add any quantitative.

Number two as you can.

In the case of Fs Jamie.

Thats a business where for example, one of the Big properties is servigistics spare parts management and airlines is the is the largest industry, we sell into or one of the largest so thats had some pressure you know as airlines were in deep trouble and whatnot.

I think.

If we see modest low single digit improvement in air our four servigistics.

Let's say for all of FSC.

As GE will still be down versus 2019, right. So we're not really expecting miracles. There. We're just saying we see some things happening that will be slightly helpful.

Now as you go to the rest of it.

The real thing is the pipeline you know.

First of all we've become much better at managing the pipeline and right now we have a very operates very optimistic looking pipeline and not just for Q1, I mean really for the whole year and really for each of the main segments CAD PLM loyalty and they are and really for each of the main geography. So we have a lot of pipeline now.

We don't have a crystal ball as to what could happen with Goldman.

Lockdowns could hurt although honestly, we feel like we're locked down and I think most of our customers feel to me like there lockdown already I mean their production people are showing up to work in the factories, but the people were selling to really a pretty much working from home.

More lets say on knowledge worker side of the business. So.

So I don't know what locked down so I mean, I kind of think were in lockdown mode. Yes, restaurants are open, but thats fine we're not selling the restaurants were selling a manufacturing company.

So I don't know what that will mean I think Christian was clear, though that our assumption.

Is that life will be kind of like it is now in the near term and improving somewhat in the back half of our year.

If if cove it does something radical.

And is radically different than that yes, okay. We're going to have to have a different set of assumptions, but we're only working with kind of what we have.

Yes.

I have anything to add to that Jim Okay. Unless there is a specific question Joe that you're trying to get at.

No no just looking for more color if I can squeak watermark.

And it goes back to a comment you made.

At the very beginning.

We go into your backlog it but it sounds like Theres actually a pretty high amount of visibility in the backlog just given some of the ramp deal structures.

That give you confidence that the question you talked about this year the AG 500 basis points departure from plan.

Next year at 200 basis points departure, and non acquired 22.

Having no departures so is.

Is that.

Yes, let me let me let me, let me link those comments the backlog.

I was really talking about backlog as I look forward to 21 and beyond.

What I said is.

There's a.

200 basis points or two percentage points headwind to our growth in Fi 21, which is contemplated in our guidance by the way right.

Really because the backlogs down.

And during the year.

But if you look at the backlog for the year after that it's right where it should be.

In fact 21.

Two points of growth you can run the math, that's what the that's what the backlog differential is.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from Andrew Obin with Bank of America. Your line is now open.

Hey, guys good afternoon.

Andrew Andrew.

Just a bigger picture question I guess, just sort of talk about adding sort of asked was functionality.

To Korean when shell so.

As you sort of think over the next couple of years, what does the investment cycle, what does the rollout look like.

No one should peak when should it start moving the needle in terms of the numbers.

Because we've been getting a lot of questions on that particular area actually.

Yes, I mean, we're going to give you a little more insight again in.

December but let me kind of just paint the highest level picture.

We think the industry is going to SaaS and with on shape, we're leading the charge, but we'd like to bring our customer base, that's on Creo and windchill along for the ride. So we're saying what if we developed using the Atlas current all if you will or architecture avant shape, what if we developed versions of Creo and windchill event.

Active a lot Mike on shape in terms of being true multitenant multi user SaaS by.

But at the same time, we're compatible so that you can do a lift and shift of an on premise deployment into the SaaS cloud.

Now that will take us a couple of years to build to be Frank because if you're talking about compatibility then you need pinpoint pin for pin feature capability right. We're not we're not talking about building a new product with limited functionality, we're really talking about full on versions of Creo and windchill. So that you could lift the production employment shifted into the.

SaaS cloud and never Miss a beat.

When it's there why it's interesting is because that lift and shift typically doubles the anr bill.

Because a subscription on premise seat.

Generally doubles and value when it becomes a subscription SaaS seat because you saved the servers and the administration and the upgrades and.

Lots of different. Thanks, So I think you should model that kind of in the in the back half of a five year window and well beyond by the way I think it's something that would probably run for I dunno could be a decade.

And but it will take us a while to get it going so I'm not counting on anything there in 21, and probably not even anything and 22.

And we'll keep you posted we got a lot of work to do.

Got you just a follow up.

Question on site access so you did highlight that.

You started seeing.

Better results in industrial Aiotv.

September.

However, the later it was to actually being able to gain side access to your customers.

And are you seeing any impact, particularly in Europe.

Sort of that our sense of luck bounce in Europe in terms of actual side access.

Well the the lack down in Europe of course happened just lately.

So I wouldn't have seen that in Q4 in any case.

But I think it was helpful now.

We didn't have a pickup in Europe, but the real pickup was in the us.

And.

We were able to re engage customers and customers send people back into their plans to get these projects going and so forth and.

It was based a lot on.

On the expansion, but also we called out.

Some real interesting new wins competitive wins, where a company said, okay lets get this initiative going and and make a selection and get back to work.

So we did see some of that in Q4.

Again, the interest level in our I don't see software remains very high.

What happened in the fourth quarter is the close rate went up.

To a more kind of normal normalized close rate.

Then we were seeing let's say in Q2 and Q3.

Great. Thanks.

Thanks for answering my questions. Thanks, a lot.

Thanks.

Thanks Keith.

Our next question comes from Sterling Auty routine P. Morgan Your line is now open.

Yes, Thanks, Hi, guys, you mentioned improvement in pipeline management.

Here is what were the changes that you've made that drove the improvement and now that you're in the new fiscal year. What are the biggest changes that you've made to the sales and go to market motion for this fiscal year.

Yes, well on the pipeline thing about a year ago, we hired a chief pipeline officer.

Which really was somebody whose job it is to really watch the pipeline and make sure we're doing the right things to build it out so.

This chief pipeline officer maintains a six quarter rolling view of the pipeline by segment by Geo by sales channel you name. It. So at any point in time I have a dashboard that says how does the pipeline look for CAD in Europe three quarters from now I can tell you that and there is a goal for how cat in Europe.

PLM in Japan is soft four quarters out get on it we need to run some marketing promotions, we need to do this we need to do that well.

We also know where to put resources so.

In terms of hiring and whatnot and we've done a lot of hiring for example in the Aer. Because this pipeline is so big and we're worried about whether or not it'll age out and disappear if we can't tend to it.

But let me say going into the year on in terms of go to market configuration, no big changes.

No big New players no big reorganizations, it's really just keep doing what we're doing because it's working pretty well came off the best quarter sales, we ever had and and is working well to link sales and marketing in it in a digital go to market motion.

We learned a lot in the last year it wasn't wasted at all in that respect.

Yes, just adding on that I think the go to market teams have done a remarkable job of figuring out how to.

Leverage.

Virtual virtual selling environment, right and actually adapt and thrive in it so I think that will be a complimentary model.

Going forward, we got much more efficient I.

I think you all know this but if you if you travel with.

Airplane tickets and rental cars and hotel rooms to make sales calls you don't get that many sales calls made and.

To the extent you can do that through a video call. It's very very productive and we came up with some really interesting ideas. For example, we've shifted our customer experience center, which was designed for customers to come till into more like a broadcast studio. So then we could do high quality events with the customer on line.

Fine, but thats not in our living rooms at home, but actually like you're watching the TV news practically I mean, it looks really impressive and then if you're there it looks kind of strange because you realize it's a studio, but we're doing things like that that really.

Make it a much more powerful scalable and efficient go to market model I really I really want to stress.

For years I was pushing.

So a question for selling to be more digital and it was hard but its suddenly got very easy and in everybody embraced it because the options were taken away.

Yes, exactly thank you guys I appreciate it.

Yes. Thank you.

Thank you.

Next question comes from Rich Valera with Needham and company. Your line is now open.

Hey, guys. Thank you.

Hi, guys. Thank.

So Jim when you were talking.

Back in the I guess sort of mid fourth quarter.

You talked about the pipeline for for your air products be multiples of historical levels I think at that point, maybe wasn't clear whats your close rates, we're going to be on this very strong pipeline and based on how the quarter turned out it sounds like maybe they started to accelerate it were pretty good. So just wondering can provide any color on sort of the our pipeline buildup you know where it is.

Dan first historical and then maybe what you've learned and how are you.

I started to close on on that pipeline.

Yes, well rich I mean, if you've been in the round enterprise software for a while you know that kind of like rule of thumb.

For every dollar you Havent forecast you ought to have $3 in the pipeline and sometimes it's still and sometimes as far.

If you have numbers that are closer to 10.

It tells you something intelligent you know you don't have enough capacity or you're not qualifying and up.

Or you have chronic problems or I mean, whatever so it also tells you have locals right.

Right, because if you didnt take the forecast up and you sit there with all that coverage somehow you buy mathematically you're not doing an effective job closing that pipeline. So we have very high levels of coverage in a car I mean and by the way and on June two is very high and so we are trying to both understand what it takes to.

Increased the close rate and we made some progress, but it isn't near that three to one ratio.

But we're also bringing in more resources. So we're making good progress and it led to pretty good results all of last year, especially in Q4 last year and we have a strong plan for this year. I mean this is a business. It's a hyper growth business. It has some real legs and we're pretty excited about and just trying to figure out how to make sure we don't leave anything behind.

Great interest for Christian quick clarification, the reason, you're able to close that 200 basis point headwind growth headwind of 22 is because of the ramp deals is that right.

Got that the 200 basis point headwind of 21, but not net 22, just wanted to clarify that.

Yeah, and I think we tried to articulate that a lot of the over performance that we saw in.

Even in Q4 relative.

Relative to our original forecast.

Actually created backlog.

Primarily for fiscal 2002 and beyond so it's.

Yes, thats ramp deals going out that going out that far as customer, yes, Let me let me just step you through that.

If a sales rep closed the deal late in Q4, and it was around a little bit in the first year, a little bit more in the second one the third well.

Wealthy closed in Q4 of the start date is almost certainly in Q1 and.

Then the ramps with typically ramp on the anniversary of the start date. So that deal closed in Q4 of 20 get nothing for 20 it.

It will do a little bit for 21, and a lot for 22 and possibly even more for 23 I mean, that's how these ramps work so what we're saying is.

We have a 2.22 percentage points against the billion Twoish billion to 50 or there are $25 million.

Air Gap, if you will in pipeline going into fiscal 2001.

But if you say well how does the pipeline look for fiscal 22 compared to how one should look right now the answer is it looks fine.

Okay makes sense, thanks, gentlemen.

Yes.

Thank you. This concludes the question and answer session I would now like to turn the call back over to Tim Fox for closing remarks.

Thanks for a while and everybody. Thanks for joining us today on the call PTC will be participating and nimble virtual events this quarter.

Posting those details on our Investor website, and we hopefully look forward to seeing you.

Conference circuit or at our Investor Day on December 15th.

And once again, thanks for your interest in PTC and have a great evening.

Thank you everybody bye bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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