Q1 2021 PTC Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to the PTC as the South and 21 first quarter conference call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The conference will be opened for questions I would now like to turn the call Alex It's Tim Fox.
He says senior Vice President of Investor Relations. Please go ahead.
Thank you Carmen and good afternoon, everyone and thank you for joining Ptc's conference call to discuss first quarter 2021 financial results and the.
I'll look for the remainder of the fiscal year.
On the call today are Jim <unk>, Chief Executive Officer, and Kristian, Talvitie Chief Financial Officer.
Before we get started please note that today's comments include forward looking statements, including statements regarding future financial guidance.
Forward looking statements are subject to risks and uncertainties and.
And for factors that could cause actual results to differ materially from those expressed or implied by such statements.
Additional information concerning these factors is contained and ptc's filings with the SEC, including our annual report on form 10-K, and quarterly reports on form 10-Q.
As a reminder, and we'll be referring to operating and non-GAAP financial measures on today's call.
And 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 and constant currency unless otherwise noted and lastly, we'll be referring referencing our earnings presentation, which you can find posted on our IR website with that I'd like to turn the call over to Jim.
Thanks, Tim.
Good afternoon, everyone and thank you for joining us I hope that you and your families continue to stay safe and well during this ongoing pandemic.
Before jumping into our quarterly review I'd like to begin by discussing the news we shared two weeks ago about closing the arena acquisition and some related organizational changes.
Turning to slide four in the deck.
First we're very pleased to have closed the acquisition and would like to formally welcome the arena and employees to the PTC team.
As we discussed at our recent Investor day.
Excited to complement the strong momentum, we have with Cree owe and when shell and the traditional cat and Peel and market with the leading cat and Pls solutions and the pure SaaS market.
Gather arena and non shape represent a powerful peer SaaS solution, that's number one and technology customers and revenue.
With this combo, we're positioned to capture the rapidly emerging shift towards SaaS for product development manufacturing and support.
There's clear evidence that the global pandemic and it's been driving a new normal and our industry and we're now and are positioned to lead the product development market well into the future.
We also announced and organization strategy and I'm excited about it.
And we're expanding our SaaS business unit initially built around Unshapen before you to embrace arena as well.
And this will put us in position to pursue technology business process and revenue synergies across the SaaS portfolio.
The expanded business unit, which now accounts for about 100 million of E. R. R and about 20% of PTC is bookings will be led by long time PTC leader Mike Ditullio.
And well focus on integrating the arena team and leveraging the tremendous talent and expertise we have across our SaaS portfolio.
And with his proven track record of aligning organizations to drive growth I'm confident that and this new role, Mike and help us fully capitalized on our SaaS leadership position.
I'm also pleased to announce that Jamie Pappas will succeed Mike as head of global sales reporting to our Chief operating Officer, Troy Richardson James.
Jamie is an accomplished 25 year PTC sales veteran.
And he has led regional sales in Asia.
Europe, and most recently and North America.
Jamie has a tremendous track record of success at PTC, So I'm confident in a smooth transition and she assumes his new role.
With that I'd like to turn to slide five and review the three key elements of our strategy to deliver long term shareholder value.
First let's cover the topic of market demand.
Had outstanding bookings results and the first quarter up more than 30% year over year versus our fiscal Q1 of last year, there was largely unaffected by the pandemic.
The bookings helped the Q1 results, but they also beefed up our future backlog.
We see the bookings strength is reflecting a continuation of the secular demand trends, we experienced in fiscal 'twenty as customers accelerated their digital transformation initiatives and response to the new way of doing business.
Industrial companies are prioritizing initiatives like moving all product lifecycle processes online across their entire enterprise with P. L M.
Remotely monitoring products and factories, with Iot and bringing digital productivity to their frontline production workers, where they are and.
And they are generally getting more and more interested and SaaS as they go forward.
For PTC. This all translates into more demand for our unique product portfolio and we see a strong pipeline heading into the balance of the fiscal year.
Given that the global PMI number reached its highest point in three years in December. We also believe PTC strong Q1 bookings may have reflected improved customer optimism around promising vaccine those stimulus policies of the new administration in Washington, and perhaps.
Even some calendar year end budget flush we.
Hope that optimization, our optimism continues but with mixed news related to the global pandemic, including concerns about new strains and the virus.
Sure they were out of the woods, yet and we continue to think that our outlook for the year is prudent.
And the topline category, a combination of strong bookings and lower than expected churn and translated into a very strong quarter with a growth of 16% or 12% and constant currency.
And this was at the high end of our guidance range and was driven by continued momentum and our core business and solid performance and the growth business.
Revenue growth of 20% was well above guidance, resulting from strong large deal activity and the quarter.
And the bottom line category, we delivered strong free cash flow of 111 million and.
And non-GAAP EPS growth of 70%.
<unk> a combination of strong top line results combined with continued operating expense discipline.
And the wake of this strong first quarter, we are increasing our guidance for the year and <unk>.
And we'll share the details later in the call.
With that as context, let's take a look at the respective contributions of the F. S G core and growth segments of our portfolio.
Moving to slide six you'll see that E. R. R and are focused solution group or F. S. G was flat year over year.
But our growth was robust and our much larger core business once again and.
And the mid Twenty's growth performance of our growth business track to our guidance for the year.
You might not visually that's a growth business has now reached roughly the same magnitude as F. S. G.
And with arena coming into the picture it will soon step up about 30% and.
And then with its higher growth rates. It will soon become much larger driving the combined portfolio toward higher growth rates as well.
Recall that our <unk> segment has exposure to certain industries heavily impacted by the pandemic like retail and airline industries.
However, our F. S. G products remain important and are very competitive and we continue to expect F. S. G to recover and low single digit ear our growth in fiscal 'twenty, one as economic conditions and growth.
We've seen some good progress and retail already but as you know the airline business remains difficult for everybody.
Naturally we're very pleased about the 12% <unk> growth of our core business, which materially outpaced the market growth again.
Q1 was the 13th consecutive quarter and our core business our growth rate has been and double digits.
As Jay Lee shower pointed out and the recent report.
<unk> has of late enjoyed the number one growth rate and the traditional cat and industry with grill and our windshield business has been doing even better.
Meanwhile, our growth business had another strong quarter with year over year bookings growth of nearly 40% and delivered E. R. Our growth and the mid Twenty's in line with our guidance for the year.
Let's go out and click deeper into the main elements of our core and growth segments.
Turning to slide seven our krio cat team delivered another impressive quarter with ear, our growth and the high single digits.
The improvement and the demand environment that we started to see and Q4 continued this past quarter with strong performance across all major geos.
And in a market that tends to see very little replacement activity. We had some notable CAD competitive displacements, which speaks to the technological strength of the cryo product suite.
Our CAD technology leadership was further extended with the latest release of free of seven which incorporates our first Atlas based offering.
Rio generative design extension or <unk> as we call it leverages.
Leverages the frustum generative design engine acquired in 2019.
With the compute being offloaded to and Atlas peer SaaS elastic computing environment from where it's served to krio sessions now and soon to unshaped sessions as well.
We also released a high fidelity mainstream simulation capabilities of answers fully integrated into Korea, creating another highly differentiated leg of growth for our CAD business.
Speaking of answers on slide eight we highlight a great trio and real simulation live or C. S. L win with shark Ninja.
Jack Ninja is becoming a household name.
And to respond to the growing demand for its products and a very competitive space shark Ninja reevaluated its design technology and decided to phase out competitive CAD system and standardize on Korea, adding.
Adding C S L to help accelerate the new product development cycle times.
Moving on to slide nine and a P. L M business.
You'll see that P. L. M continued to deliver very strong performance with another mid teens <unk> growth quarter.
From a geographic perspective in Q1, <unk> performance was broad based with double digit growth across all three major geographies and.
Led again by the APAC region.
Thanks to its key role and digital transformation initiatives P. L. M continues to be a major growth engine for PTC.
From a vertical perspective, our P. L. M team continues to win big and the medical device space, but market traction and the first quarter was strong across a number of verticals, including automotive aerospace and defense and high Tech.
Turning to slide 10, and a great proof point and A&D was a major extension and expansion at Airbus.
Which also happened to include a competitive displacement and one of their divisions.
Along with the win win shelf footprint expansion Airbus adopted thing works and view for you and the manufacturing environment, which is another great example of the cross sell opportunity within our product portfolio.
Given today's difficult air transportation market airframe companies are being careful with spending but thanks to this deal PTC is locked into a substantial long term relationship with Airbus.
You'll see on slide 11, and that we had a great cloud based windchill win and to Roomba and the medical device space.
Roma is replacing its paper based FDA compliance system with an end to end digital thread based on windshields quality management solution.
Moving on to a growth segment and I'll begin with Iot on slide 12.
Following strong bookings performance in Q4, Iot had a solid start to the year with a promising uptick and new logo bookings and the area that was pressured over the last year due to travel restrictions and lockdown.
Demand was broad based across verticals and we had some sizable expansion deals in the process manufacturing space, which is greenfield for PTC.
With the strong pipeline and encouraging signs of churn improvement and Iot as well, we expect to see continued solid <unk> growth and fiscal 'twenty one.
On Slide 13, we have and example of thing works and the process manufacturing space and Griffin foods.
And again, a market that has relatively thin margin Griffin foods with looking for ways to accelerate efficiencies and its production environment.
<unk> the thing works smart connected operations or S. C. O solution. They are digitizing their production lines to capture key performance data and display it and a unified view to allow managers to see problems and make faster more informed decisions on the plant force.
Let me shift to our E R business on slide 14.
The view for you augmented reality team again delivered very strong results and Q1 with bookings up 80% year over year.
Expansions drove over 50% of bookings and the quarter with three deals greater than 500, K, which was a new record for the IR team.
Traction outside the Americas continued to gain momentum with strong growth in both Europe and APAC.
Let me share two examples that highlight the value of a broader suite.
First on slide 15 is a big growth one of the largest integrated suppliers and the wood processing industry.
The bid group replaced a do it yourself or DIY approach for industrial Iot and then added before you talk to the mix to improve workforce productivity, while reducing travel costs.
Turning to slide 16, our second great AI success story is Royal Enfield, the world's oldest motorcycle brand and.
The COVID-19 pandemic unfolded Royal Enfield was forced to re imagine our planned physical event for launching a new motorcycle.
Bridging before your studio and under a month they built a dynamic sales training capability and delivered this highly effective interactive augmented reality experience to more than 3000 and remote participants.
Turning now to slide 17, and I'll wrap up my comments and a growth business by discussing and sheet, which also delivered a very strong quarter.
And shape had record bookings up more than 150% from its initial quarter at PTC, one year ago, Inc.
<unk>, a nice balance of new logo activity and expansion.
And shapes peer SaaS CAD solution is quickly becoming a disruptive force in the SMB space shaking up a mature market segment, where PTC has been under represented for years and.
Like to update you on the exciting trends, we're seeing in the education market.
And as the Covid pandemic unfolded, we saw a real opportunity to help schools and universities because we have the only true school from home CAD solution. It works on any device with no installed footprint.
Ptc's academic team decided to pivot they're focused on shape and set an aggressive goal to try to reach 1 million total education users by the end of fiscal 'twenty one.
Put that and prospective it's double the number of users that were participating in our education program across all PTC products at that time.
I'm happy to reported already in January we've exceeded the goal of $1 million total and cheap education users nine months ahead of schedule.
And shape is quickly becoming the education standard thanks to one of the greatest share shifts I've experienced students and teachers love it.
Clearly, we caught a wave as world events, and the changing needs and education have accelerated this achievement.
It's been incredibly rewarding to see how many educators and students and been able to take advantage of on sheet.
Students, who would not normally have access to CAD and now able to engage and stem classes.
Biotics teams are able to compete even when their season is cancelled and educators have been able to seamlessly continue their instruction and because of their access to Andre.
On slide 18, we highlight one of the many school systems supporting their K 12 stem education program by adapting on chip and this case across the Charlottesville City School system.
Gaining 1 million student users is a huge milestone with significant implications for PTC well into the future.
Manufacturing companies have the very same needs for real time collaboration and access to data from anywhere and on any device.
I continue to think the Covid crisis is accelerating the SaaS tipping point for the engineering software industry by several years and.
Slide 19 Youll.
A great example of a commercial company Sterling Ultra cold doing the same thing they were adopting unshaped to streamline communication between mechanical designers supply chain managers manufacturing and quality assurance teams to avoid the delays associated with sending CAD data back and forth by email like they used to do.
So wrap up on a growth business I think it's pretty clear that our solutions are uniquely positioned to help customers respond to the new normal they are facing today.
And they provide a very strong foundation for long term growth for PTC.
Let me provide some color on geographic performance, which was strong across the globe.
And slide 20, and Youll see that APAC had strong performance with E R or growth of 16%, reflecting the earlier reopening of those economies and much improved churn rates as a subscription licensing model gains increased acceptance.
Americas are our growth of 13% was the second quarter and a row of double digit growth.
Given by broad based demand across our core and growth segments, but partially offset by softness and F. S. G.
Europe, a growth of 8% faced a tough year over year comparison, but delivered very strong bookings performance and both our core and growth segments, along with some notable competitive wins.
With that and now let me turn to slide 21, and touch on our key Alliance partners. The Microsoft partnership had another strong quarter delivering above plan for the third consecutive quarter and exceeding expectations in all geos.
As you saw in their earnings release yesterday, Microsoft has a lot of momentum and we're drafting behind it.
With a solid pipeline and field engagement strengthening and across the globe, we remain bullish on the Microsoft Alliance opportunity.
Rockwell delivered over 20 expansion deals and had transactions and 27 countries.
The majority of Rockwell's deals continue to come from customers that are greenfield, the PTC and and process industries that we have not traditionally targeted with our core products.
I was pleased to see and their earnings release. It Rockwell too is seeing a strong uptick in orders.
If you followed Rockwell and you may be aware that they have reorganized to have a software focused business unit that owns the PTC partnership and yesterday, they announced that they have hired Brian Shepherd to head up that unit.
Brian work directly from me at PTC for a dozen years. So I know that Rockwell has found a very capable software leader and somebody who can help the PTC Rockwell relationship and <unk>.
<unk> fullest potential congratulations to Brian we're looking forward to working with them.
Lastly on the alliance front, our answers powered solutions had a solid quarter with 20% bookings growth and very healthy expansion activity that drove around half of Q1 bookings to complement CSL and the market, we launched a broader and deeper real answers simulation suite. We're.
And we're expecting these answers powered solutions to account for high single digit percentage of our new cat ACB and fiscal 'twenty one.
Before I wrap up I'd like to highlight a great win we had with Microsoft on Slide 22.
Cole Road group was looking for and Iot platform to support a complete digital transformation of their shops food production energy production and logistics and.
Microsoft received and RFP and a competitive bid process and turned to PTC to partner on the opportunity.
And we ultimately won together, resulting in a multiphase hybrid cloud Iot project.
To wrap up and summarize my comments turning to slide 23.
To a great start in fiscal 'twenty, one as customers continue to embark on digital transformation initiatives that leverage our full product portfolio we.
We had strong bookings and the quarter and churn performance was good as well we delivered a or are at the high end of guidance, while adding to the backlog, we saw a great performance and growth segments and and our channel.
The demand environment appears to be improving globally, and our strategic alliances continue to grow and mature.
Plus with the arena team joining forces with Unshaped PTC is now positioned as the number one leader and <unk>.
SaaS based CAD and P. L M and along with Euphoria. This sizable pure SaaS portfolio is paving the way toward and attractive future proof business model for PTC.
And as Kristian will detail shortly and we're pleased to be raising our fiscal 'twenty, one guidance and recognition of solid execution.
It demonstrates our capability to deliver strong top line growth margin expansion and free cash flow generation and.
And necessary ingredients to drive significant shareholder value for years to come.
With that I'll turn it over to you kristian to take us through more details and 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 and constant currency.
Let me start off with a brief review of our first quarter results then spend the balance of the call on our revised outlook for fiscal 'twenty one.
Turning to slide 25 fiscal Q1 <unk> of 1.34 billion.
Increased 12% year over year as Jim noted earlier, we had very strong bookings performance in Q1, resulting in new HCV above expectation and consistent with recent trends and demand for ramp deals was strong which contributes the backlog and future periods primarily physical.
92 and beyond.
With solid new HCV results, along with churn coming in better than expected. We were pleased to deliver constant currency growth at the high end of the guidance range.
Reported a growth of 16% benefited from 400 basis points of currency <unk>.
Including a 200 basis point tailwind since the beginning of fiscal 'twenty one.
Strong Q1 free cash flow of $111 million was a record Q1 results for PTC.
Q1 revenue of $429 million increased 20% year over year and was well above the annual.
Annual guidance range, we had provided last quarter revenue performance was driven by very strong large deal our results in the quarter, many of which have long contract duration.
As we've discussed previously revenue is impacted by ASC, 606, which and the case of Q1 and drove a higher amount of higher amount of upfront subscription revenue recognized in the quarter.
Currency was also a modest revenue tailwind.
The strong revenue growth along with continued financial discipline resulted in non-GAAP EPS growth of 70% year over year.
Turning to page 26, I will begin with our balance sheet.
And in Q1 with cash of $399 million and $1 billion of gross debt with an aggregate interest rate of three eight per cent.
Subsequent to the first quarter, we financed the arena acquisition with $600 million from our revolving credit facility and cash on hand.
From a use of cash standpoint, we plan first to pay down the revolver until we're below our.
Three times debt to EBITDA ratio target, which should be within the next couple of quarters.
Over the medium term, we expect to continue to Delever, while also resuming share repurchase.
Now turning to guidance I'll begin on slide 27 by highlighting a few of the key guidance assumptions.
We continue to expect the macro environment to remain stable and the near term with conditions, improving and the second half and the fiscal year.
And with this as context, we're also still expecting fiscal 'twenty, one bookings growth in the double digits on a year over year basis.
Given our strong Q1 performance, we're raising the low end of our organic growth from 9% to 10%, resulting in a range of 10% to 12%.
Growth for the fiscal year.
We're expecting arena to add approximately 400 basis points of <unk> growth and currency to add approximately 200 basis points of our growth relative to our previous previous guidance.
Regarding <unk> and fiscal 'twenty, one on a constant currency basis, we continue to expect growth rates to be fairly linear each quarter throughout fiscal throughout the fiscal year.
Now for the specifics turning to slide 28, we're expecting fiscal 'twenty, one and <unk> of $1 47 to $1 5 billion, that's a growth rate of 16% to 18%.
Free cash flow is still expected to be approximately $340 million for the full year.
Which is growth of approximately 60% year over year.
Note that currency is also benefitting free cash flow by about $15 million. However, this benefit is being offset by and Unforecastabel foreign tax assessment related to a matter that's been open for a few years.
This tax matter is also reflected in our GAAP results as Youll note a $35 million charge that covers the periods from 2011.
For 2020.
This charge reflects the previous assessment paid in 2016 as well as the current expected assessment.
We continue to believe that our position is correct and are fighting this issue in court.
And we do not expect to final resolution on the matter for at least another year.
Our $340 million free cash flow target also includes approximately $15 million of acquisition acquisition related fees and an additional $5 million of incremental interest we expect to pay this year due to the debt we took on to help finance the arena acquisition.
And as a reminder, fiscal 'twenty one free cash flow also includes approximately $15 million of restructuring payments related to primarily to the headquarters relocation.
As well as to cost.
Cost actions, we took early in fiscal 'twenty and that's early last year.
Regarding the linearity of free cash flow and fiscal 'twenty, one we still expect to generate more than 60% of our annual free cash flow and the first half as collections are stronger and the first half and this is offset by expenses, increasing as we ramp hiring throughout the year.
Now turning to P&L guidance.
We're raising our revenue and EPS guidance for the year.
We're now expecting fiscal 'twenty, one revenue of $1 69.
The $1 73 billion, that's a growth rate of 16% to 19%.
And the increased revenue growth guidance is really driven by three main factors.
First.
And the strong large deal activity.
And longer than anticipated contract durations that we saw in Q1.
Which as we've mentioned before because of ASC 606 is driving higher upfront revenue recognition. This.
And this ultimately is contributing about 400 basis points of growth.
As a reminder, this change has no impact on our free cash flow as we continue to build customers annually upfront.
Second the arena acquisition.
<unk> will add approximately 300 basis points of growth.
And lastly, FX or currency, which should add approximately 200 basis points of growth relative to our prior guidance.
On the expense front, we're now expecting operating expense growth of approximately 16% and fiscal 'twenty one.
This is an increase of approximately 600 basis points.
Half of the increase is related to the arena acquisition and half related to currency.
Non-GAAP EPS is now expected to be $3 <unk> to $3 25.
Which is growth of 19% to 26 per cent.
I'd also note here that GAAP guidance does not include the impact of Arena solutions purchase accounting is the valuation of acquired assets and liabilities.
And is not yet and completed.
Wrapping up.
We had strong financial performance again here in Q1.
We delivered double digit <unk> growth, while maintaining discipline on our expense structure.
And continue to navigate and of <unk>.
Very challenging macro environment.
The strong start to the year positions us well to deliver attractive double digit top line growth and very strong free cash flow.
With that I'll turn the call over to the operator, and we can begin Q&A.
Thank you and ladies and gentlemen to ask a question simply press star one on your telephone to withdraw your question press the pound key.
And please limit yourself to one question only.
You have additional questions. Please return to the queue.
Our first question is from James.
And the shower with Kristian Securities Your question. Please.
Thank you and good evening.
Tim Let me start with a technology question for you having to do with the arena and acquisition.
With that you know arguably have.
And three code bases, where PLO.
Rina windchill and and unshaped.
And that's not unprecedented and the industry as you know as a result of acquisitions and.
Technical software.
And could you talk about how youre thinking about.
And the co development or the joining.
Of those technologies, particularly given the ultimate objective you seem to have had with Atlas and having a micro services architecture. For example, and then for Kristian at the Analyst meeting you put up a very interesting slide on your customer engagement model showing seven categories of customer that I don't think Inc.
So and before how.
Does your guidance and comp.
As youre thinking about those various categories in terms of growth and contribution to fiscal 'twenty. One. Thank you.
Alright, great. Thanks, Jay and Kristian, you can start thinking about the answer to that one.
Yes, Chris.
Yes, so that's it.
It's a good observation I mean, we had windshield and we're quite on shape and there are two different things and now we acquired arena. So yes. In fact, we have three but actually we do have a very well understood strategy. So so first of all we will begin the process of.
Looking at the best ways for arena to use more and more of the Atlas platform that came to us without shape.
And to be Frank Arena, and and Unshaped don't do exactly the same things you know and shapes more like <unk>.
While management expense, not really files, but more like data management and collaboration and and unchanged more like bill of materials. So those two things do different things, but they will over time share more and more of a common architecture called Atlas. So and then that still leaves windshield and.
So we have shared kind of a mid term project that we are developing versions of windchill and Korea that will use the atlas platform to a great extent, so that they can be delivered in a SaaS model, but those products, we will retain full upward compatibility from the on premise versions that exists today.
We will continue to maintain and non premise version. So you might say, we're going from three to two to one and a half or something like that.
But theres a good a good strategy here for how this stuff evolves and none of it's going to be a revolution, because we're bringing all the customers with but I definitely think this is a problem that will fade away and we've done that before.
It's a problem that I'm and I'm sure. It's a problem, but it's a situation that will be.
That will evolve over time toward a cleaner kind of steady state and the yen.
Christian yes.
Great.
Jason I think what you're referring to is that our S. One to.
Sick.
Our customer engagement model.
I mean, I think here conceptually the right way to think about it is.
The largest piece of our <unk>.
It really comes from S. One the S. One and S. Two space.
That's also actually where we still see a significant amount of new bookings activity.
Those are our largest and and a customer.
Customers with the biggest growth prospects.
We have a lot of stable <unk> and kind of the S. Three and S. Four space.
And the new.
Really the.
The land and expand activity happens primarily within.
The F five and six space and so you know I mean, if I.
I was going to think about this I'd still put the largest chunk up and up and S. One and S too.
And we're seeing a lot of momentum in the F five and ethics Tim.
We actually mentioned and the on.
On the call.
And that we've seen a little bit of a resurgence and new Iot customers coming back in the.
And the channel.
Which also operates and kind of the S five ethics, and and and and the channel space continues to bring in new customers. That's obviously also were thinking.
Relationships like Rockwell or who also continue to bring in a lot of new Greenfield customers, which are the foundation really for us to continue to expand upon those relationships over time.
And your question, but let me add some color that I think is easier way to see it.
I think if you look at it by product you get a different story because the.
And the size the relatively larger size of some products kind of overwhelms that story, but.
Arena and non shape are all about new accounts. They are basically competing in a space, where we didn't previously have products competing so they're almost entirely new accounts.
If you go to the Iot and AR, that's kind of 50 50, because those are products, we can sell to our traditional accounts, but of course, there's a lot of demand and interest and Iot and they are and we have new partners like Rockwell and also take us to a lot of New places and then if you go back to <unk> and Windchill I mean that would be majority of the book.
And it's coming from companies, we've been doing business with but sometimes we we knocked one offer theres, a consolidation play or something like that and.
While the channel is bringing in some new accounts, so I think it's.
Almost all new for on shape and.
And arena, roughly half and half ish for Iot and they are and sort of majority maybe 70 30 and.
And in favor of installed base with grilled and winter.
Alright.
Okay.
Thanks very much.
Great.
Thank you. Our next question comes from Adam Borg with Stifel. Your question. Please.
Yeah, Hey, guys, Hey, guys and thanks for taking the question maybe just two real quick.
First on arena.
Can you just remind us on arena.
International footprint and what's the plan to kind of expand that both direct and via channel and then maybe to just enhance it. So thanks for the color of how you're thinking about.
And <unk> simulation live and Cree assimilation growth over the back half of the year, but what do you think more broadly how addressable is apio simulation technology to your broader installed base.
Thanks for that.
Yeah.
So let.
Let me say on your first question Arena Arena is predominantly a U S business.
It's been almost from.
Two a very great degree sold to American companies, although some American companies have users overseas, but it hasn't really been sold to companies overseas.
With just a small and from small exemption.
So the first thing we're going to do with arena for share is go international with it I mean, that's a that's a good piece of our growth we ought to be able to go after and as a synergy and then of course cross selling between Unshaped and arena already produced another synergy and and I think our channel auto produced yet another synergy so I'm sort of of the opinion that.
There's a lot of upside to arena, if not this year certainly in the coming years as we can take this this business places that arena themselves could've gone so easily.
So that's maybe the first part and then second and answers if I remember we had quantified.
That we thought there was a 100 million dollar potential opportunity with <unk> simulation live in our base.
I think thats before I don't know if Tim did that include the mainstream.
And it mainstream stimulation products now so I haven't quantified that but you know well more than a $100 million because the the rest of the answers suite actually comes and are at a higher price point, we'd probably get less penetration because some of them might already have purchased it from <unk> or one of their distributors, but certainly certainly $100 million would be.
The floor in terms of opportunity you know will we ever get 100% of that now but.
Certainly and certainly as a sizable <unk>.
Our opportunity for us.
Great. Thanks again.
Thank you.
Thank you. Our next question comes from Rich Valera with Needham Your question. Please.
Hey, Richard Thank you.
Good evening gentlemen, first just a quick follow up on that answer. This question and I know you have the target of high single digit percentage of our new cat ACB per this year can you say, where it was last year. Just so we have some perspective on how much growth that was and then for the Iot products.
It sounds like a solid performance this quarter, but I know last quarter, you talked about bookings doubling quarter over quarter. I'm. Just wondering if you can give us any sense of the kind of quarter over quarter momentum you saw in that business from Q4 to Q1. Thank you.
You do you have a quantification Christian on the the size Anthos would've been in terms of new ACB within CAD last year.
Nominal nominal what do I mean, it would have been some because we had some initial sales.
And yet it but I mean, it was not and it would have been low single digits. So I think that we're going from low single digits to high single digits would be our aspiration here.
Got it Thats helpful. Tim.
And then on the Q4 to Q1.
Q Q1, Iot bookings didn't have the same growth rate that they had and Q4, but again it was a healthy number I mean and in Q4. It was a very healthy number and and in both cases, a lot of that went into backlog.
And youre seeing a situation where.
The backlog deficit. We started this year with you know had a fairly good representation and Iot and that's slowing down our Iot growth rate and.
Some of the goodness that we're bringing in with new bookings is going into backlog and will help next year, but it doesn't necessarily come and overcoming the deficit and we started the year with so anyway. We are still on plan. So it's a it's a it's not a bad thing but.
Putting more.
More bookings and the backlog for next year and year after that is a good day.
And that makes sense, thanks, gentlemen.
Thank you.
Thank you. Our next question is from Sterling Auty with J P. Morgan Your question. Please.
So from the age.
And on for Sterling Tonight, Thanks for taking our questions.
First one is a follow up on the Iot bookings and kind of a good start to the year any particular verticals that really stuck out.
And maybe verticals that they performed well outside of the Rockwell channel right.
Yes, we are.
We looked at that day to Jack and it it really was pretty broad representation.
Tim and I were studying that data and nothing really jumps out it's sort of a little bit everywhere and more or less the percentage. We normally have so broad based is how I would characterize that.
Okay.
And then another another bookings question and vertical question really odd shape.
If we think about the up well over 150% from bookings what if we stripped out.
<unk> yeah.
What kind of mix is are the bookings coming from edge caching vs.
And that's an easy one Jack because you don't have to strip it out we've not been charging educational institutions for the software.
However, we had a program that you could use it for free for the first year.
So we do anticipate that as the school year wraps up and we move into next year, we're going to get up pretty decent conversion rate to paid.
But in that and that good news that we have so far it's all commercial sales.
Great. Okay. Thank you.
Thank you.
And you. Our next question comes from Circuit Calia with Barclays. Your question. Please.
Hey, guys. Thanks for taking my Hey, Tim Hey, Jim and Christian Thanks for taking my question here I'll just keep it to one.
Jim maybe just for you.
The business that surprised us all last year and.
And I think continues to do here in Q1 is the performance and Pls.
Maybe the question is how much of this do you think is from.
Maybe and industry wide refresh right, that's maybe coming from just more digital transformation as you sort of hinted out before versus market share gains.
Well I mean first of all I do think there are some real strong market share gains.
You know I don't think other vendors are performing at the same level as we have been and and it's been a long time since and have you guys asked me of Arris was disrupting us we kind of Havent heard that name and ages and so.
So I think they are losing some real momentum so I think it really is.
More companies are realizing that they need if they have <unk> they need to have it more broadly and more people need to use it like.
Like maybe maybe the procurement guy could walk down the hall and talking to the engineers, but and all these working from home and we can't and so we need to see so I think some of it is existing companies broadening and deepening their implementation and then I think theres a lot of companies who like the <unk> example, we gave who was doing their FDA compliance literally on paper, saying, Okay. That's all.
And then work we need to get a BLM system, we need to get it fast. So I think theres a lot of companies, whose appreciation of P. L. M has deepened greatly.
And the last couple of years first for digital transformation and general and then for Covid, requiring it and I think that all of those companies, who get religion around BLM, where certainly knocking down more than our fair share that's how I would characterize that.
Got it that's very helpful I'll hop back in queue. Thanks.
Thanks, and thank you. Our next question comes from Joe will link with Baird. Your question. Please.
Hey, Joe.
Oh, Hey, hi, everyone and I'll try to squeeze into one more near term from the the mid December comments on IRR. The corridor definitely finish stronger than that communication is there any activity and that came in at quarter and I know you talked about maybe some year end budget flush, but anything else you know that.
Fact that large deal signing and seem to be working back into the mix, where you would maybe point to quarter and activity and.
And it perhaps as early but these developments are new and maybe it could be extrapolated into something changing and then the second question. It kind of gets back to the P. L. M question and I was just asked but yes, the verticals of high Tech life Sciences Aerospace and defense.
These have been really strong for PTC pretty consistent consistently and now you're adding arena, which is strong and those verticals as well. So is there something specifically about those markets and how they're viewing P. L. M that really has the benefit of the fact that PTC has good exposure there.
Yeah.
So.
Let's take the first one.
Our mid December comments, Kristian said, he anticipated we'd be in the middle of the nine to 12 range and we came in at 12, So I.
I think to be Frank what happened as we review the forecast every single week on Friday, and we raised it four times in December so by the time, we had that meeting with you. We had raised it once but you know a couple of days later, we raised it again and then twice more so if you study the pls and performance.
As of course, we do.
And what you'd see us and it wasn't on the backs of any one geography or any one vertical or any one big deal. It was just a lot of deals of all sizes and all geographies across a bunch of different verticals. I mean, it's just felt like just good solid business everywhere as opposed to some surprise.
I think.
If you if you go to the vertical question you asked.
I think arena is very strong and and high Tech and very strong and general in SMB now high Tech does tend to have a lot of SMB customers and the other thing about high Tech is.
Product life cycles tend to be very short.
Triple Sevens like like Boeing does it's very hard to switch can systems, because those products last for decades, but if youre, making consumer handheld devices and life on one of those things pretty darn short and the next version isn't based on the last version. So you can switch tools much more easily so I think and general electronics and high Tech is a fast cycle market and it's easier to.
Get a share shift to happen, there, which helps both unshaped and arena by the way.
Now PTC does well and the larger electronics and high Tech customers, who probably are selling stuff and it ends up in Iraq, and the datacenter and and.
No big machines.
Machines that have a lot of electronics and them and so forth that arent necessarily so short cycle and whatnot and the.
Case of.
Aerospace and defense I mean arena does have some aerospace and defense accounts that are generally small suppliers to and larger firms.
But I would say you know probably that's not that's not necessarily the best spot to sell arena.
Other than if you were low and the supply chain and there are a lot of small suppliers and the aerospace and defense supply chain and part because the government encourages that so I think on shape and.
We're also coming out with and <unk> version of onshore for the same reason.
And that the smaller the smaller accounts need something and really just don't have the wherewithal for the bigger heavier enterprise systems.
Masters at the top of their supply chain would prefer.
Prefer so I think maybe a long way.
Arena and non shapes are very complementary.
Oh, and windshields and they do the same thing, but they appeal to different segments of the market.
And the low end of the market doesn't want the high end products and the high end and the market today doesn't want the low end products that may happen over time, but right now it's all it's all incremental upside as far as I'm concerned.
That's great. Thank you very much.
Thanks, Joe.
Thank you. Our next question comes from Matt Hedberg with RBC capital markets. Your question. Please.
Hey, Matt Hey, guys, Hey, guys, Hey, Hey, guys. Good evening, congrats on a really strong quarter here in Q1.
Tim I wanted to ask you a question about some of the CAD replacement deals obviously, it looks really good to hear and obviously difficult to pull off.
And I'm wondering if you could provide a few more details on what drove those and.
And thinking longer term with all your investments and SaaS CAD and Atlas.
And do you think we might be and a scenario, where you might see even more disruption and the future. Some of these some of these CAD replacements and considering what you've done with SaaS versus some of your peers.
Yeah.
So.
Two in particular and I'll talk about one really with shark Ninja.
But let me let me cover the other one first it was a.
European OEM I can't tell you, who it was I will be able to at some point, but not yet I don't yet have permission, but ER and OEM, who had both our software and our can't software and our competitors and use them both as many large Oems do.
And they decided that they didn't like that anymore and they would really prefer to have one tool and as they had to go from two to one and they were going to drill.
So that was a pretty substantial displacement on the very well known and high end product and then and.
And the other case really was.
A displacement of a very well known low and product.
Where where this account said sharp.
And just said, we really like what <unk> can do and we really like CSL and and so forth and and we don't like having two sets of tools and if we had to pick one and we can take real so kind of at opposite ends of the Creole range. If you will.
And we're displacing different products from the same vendor.
And that vendor you can guess who it is.
And has kind of left their customers a little frustrated.
Some of their business policies some of their technical strategies.
Well accepted by the customers and is creating some discontent and some of that just content and turns into switching.
And especially if youre looking at to tools and Youre, saying I wish we had one well I really like those PTC guys, the tools and great and embedded and work with you and.
And I forgot.
Thank you.
Thanks, Matt.
Thank you. Our next question comes from Gal Munda with the Brandenburg and your question. Please.
Hey, Yeah. Thank you for taking my question Tim.
Tim I have a question for you in terms of Iot and the past you've said that a lot of your Iot growth and the future will be obviously rely on from the partners.
And bringing on incremental and new opportunities.
Maybe you're talking about is wrong obviously.
From Microsoft.
Recently, a few days ago, you've been kind of.
I can see if we could use the smart factory.
And on the cash.
And the Iot initiative and I was just.
Wondering how much how does that compare to something like Rockwell and.
How complementary it and versus how much is a day.
Positive channel to something like Rockwell as well.
Clearly isn't put exclusive how does it work.
Yes, I mean, there there is no exclusivity there.
Happened with Fujitsu is.
And as I understand the story first day implemented our software and their factories and it was quite successful and then there is a system integrator arm of Fujitsu.
We'd like to take a guess showcase we built and their own company and take it down the road and sell it to other companies.
And so.
That's the nature of that announcement, but Fuji.
Fujitsu is and S. I is no Rockwell.
So I don't really they're much more localized and certain pockets and so forth, but you know an important partner and we're glad to have them.
But I don't think it's meaningful at the level of a Rockwell and partnership certainly not yet maybe it will get there some day, but.
Just think of them as two different tiers.
Gotcha.
To really expand that channel partnership with and.
Alright.
Yeah, I mean, a lot of ESI as want to sell with us.
Where we sell the software and they do the project and that's emotions and working very well.
And then some size.
And in some cases like for did you say well could we just sell it because you know we have some we have some clients we'd like to go basically sell them, what we've done and our own company and we'd like to take that order. So I.
And I think that for every Fujitsu, there's multiple and science that we sell with rather than through.
Okay. Thank you.
Thank you.
Our last question will be from Matthew Broome with Mizuho Securities. Your question. Please.
Thanks, very much from that high.
Hum hygiene pet parents and thanks for squeezing me and so.
And Justin tons and you are.
The business unit is that more of and operational structure or is it also responsible for driving future SaaS strategy, including M&A and.
Maybe the migration of your coal products.
Yeah, I mean, it's a it's a business unit.
And quite frankly, and it has R&D.
R&D and marketing and sales and it doesn't really do services, because we don't so much need that.
But it's really a pretty complete business unit and it has a P&L. It has growth targets, we will make acquisitions for them and in fact arena was an example, but we've made a couple of other little tuck ins that we did announced because they were too small.
But definitely that's our business and the way I look at it they are paving the path for our future PTC.
Because at some point.
Our industry will really go to SaaS and starting to and.
That's good but at some point it'll dip right over like other industries have and at that point.
That business unit will be bigger and bigger and may in fact be the future.
She and her gravity for PTC and its not.
Big enough and.
100 million and that's 100 on a let's call it $1 billion for so it's a it's not yet 10% but.
You put arena and there and it steps up closer to 10% and then you let that growth rate run for a while and.
And it won't be long before it's a it's quite meaningful to us but.
That's what they are doing they are paving the path.
For our future PTC.
Okay that makes sense and then maybe just quickly could you give us any idea in terms of what the win rate software unsafe buses.
Right.
The competition.
Yeah.
Well I think what it really comes down to is does a customer wants SaaS or not.
If they want SaaS.
And then the winter and it's exceptionally high.
But they might decide they don't want SaaS for whatever reason and it might be that other people and their company already you solid works or what have you.
But let's think of on shape as a really good CAD system on a completely different deployment and business model.
And the deployment and business model.
No.
And even more differentiated is more differentiated and the product itself is.
So I think smaller companies say you know I really liked the idea of being able to get to this data without having a server without having a system administrator without haven't I'd like to be able to pick up my work at home and my Macintosh If I worked on it all day on a windows workstation and I mean.
That's great I like the real time collaboration and shapes, a multiuser system.
And our multiple users work together on the same designs at the same time as opposed to multiple users work and independently and pass and data back and forth, which is how most other candidates and to work. So I think again.
I, often say think of it like electric vehicles versus internal combustion engines, it's religion and at some level.
And very few people get down to a shortlist that has three of each.
Somewhere in the decision, making process, they either say I want electric and know them down to a shortlist of electric vehicles or I don't want to electric I'm gonna stay with internal combustion and they end up with that short list.
But I'm, saying for those customers, who say I think I want SaaS theres, a good chance, we're going to win that deal.
Alright, thanks very much.
Thanks, Matt.
Thank you, ladies and gentlemen, this and our Q&A session I will turn the call back to Tim Fox for final remarks.
Thanks, Carmen and thank everybody for joining us today on the call will be out on the road.
Virtually over the next quarter participating and number of events. Please check out our website for details and we do look forward to seeing you.
And this over the next coming months and certainly in 90 days and thank you for your interest and PTC.
Have a great evening.
Thank you everybody and thanks to everybody.
And thank you for your participation in today's conference you may now disconnect.
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