Q1 2022 PTC Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the PTC 2022 first quarter conference call.
During todays presentation, all parties will be in a listen only mode.
During the presentation the conference will be opened for questions.
Now I'd like to turn the call over to batch now PTC as head of Investor Relations. Please go ahead.
Yeah.
Hello, Thank you Julian and welcome to Ptc's results call for Q1 of fiscal 'twenty two.
Tim <unk>, Chief Executive Officer, and Christian <unk>, Chief Financial Officer.
During this call PTC will make forward looking statements, including guidance on future operating results because such statements deal with future events actual results may differ materially from those projected in the forward looking statements additional information.
Information concerning factors that could cause actual results to differ materially from those in the forward looking statements can be found in Ptc's. Most recent annual report on Form 10-K .
Quarterly reports on Form 10-Q , and other filings with the U S Securities and Exchange Commission as well as in today's press release.
The forward looking statements, including guidance provided during today's call are valid only as of today's date January 26, 2022, and PTC assumes no obligation to update these forward looking statements.
During the call PTC will also discuss non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website.
With that I'd like to turn the call over to Ptc's, Chief Executive Officer, Jim <unk>.
Thanks, Matt.
Good afternoon, everyone and thank you for joining us.
Turning to slide three I'm pleased to share that PTC delivered another strong financial performance in fiscal Q1.
We executed very well building on the momentum we saw in Q4.
To simplify things. Please note that throughout my prepared commentary I will only discuss growth rates in constant currency.
<unk> came in at 150, 7 billion, which was better than the $1 5 billion, we had guided to at the recent Investor day.
That represents 16% growth, 11% of which was organic.
Adjusted free cash flow was also strong at $145 million, which was up 20% year over year and better than the $140 million expectation, we set at the Investor day, we're off to a very strong start in fiscal 2022.
Turning to slide four of particular note was our booking strength bookings.
Bookings were up double digits organically and high teens overall.
Against the very strong Covid bounce back quarter, we saw in Q1 of fiscal 'twenty, one when bookings grew more than 30% over the prior year.
To put it in perspective, given the tough comparison against Q1 of last year, we had planned bookings to actually be down slightly inclusive of arena. So this performance was more than 20% above plan.
I know that some analysts and investors have voiced concern that the restructuring work. We did in late Q4 and throughout Q1 with distract us, but obviously, we didn't see that.
The strength was broad based across direct sales and resellers and was achieved with no mega deals.
Rockwell came in ahead of their part of our plan until which is great to see and suggests my concerns of them being distracted may prove overstated.
Irina contributed the inorganic element of bookings growth with another strong bookings quarter coming in above plan as well.
With the arena acquisition getting round tripped here in Q2 arena becomes part of the organic results going forward and Theyre low twenty's growth rate will then add another tailwind to the organic results.
The arena has been a great acquisition.
But bookings growth was particularly strong in <unk> and in both Europe and Americas.
From a macro perspective global PMI remain in expansion territory, while digital transformation and SaaS continues to grow in importance as secular drivers.
The interest in digital transformation and SaaS has been driving strong bookings for what is very sticky software, which when layered into a recurring revenue model that is atypical of industry peers has allowed PTC to deliver performance in excess of market growth rates.
This happened right through the pandemic, especially in the large core business. It represents about 70% of our IRR and we fully expect it to continue going forward.
These factors gave us confidence to raise the lower end of our guidance range, which at the new midpoint basically means we've rolled our Q1 beat forward.
Now, let's take a look at the our performance by geography on slide five before turning to business units.
In Q1, we saw strong performance across all geographies.
Our growth in the Americas was 19%.
All product segments growth with key growth drivers being the acquired arena contribution and the velocity business unit overall layered on top of another strong quarter in the core CAD and <unk> business.
In Europe , our <unk> growth was 13% we saw strong results across the board in Europe with the strongest drivers of the growth being our digital thread growth and core businesses.
Europe is the largest mix of channel versus direct and the resellers continue to perform well.
Our IRR growth in APAC was 14% with growth primarily driven by our digital thread core business.
Next let's take a look at the performance of our various business units starting with the digital thread group on slide six.
In our largest product segment digital thread core we delivered yet another double digit performance in Q1 with 11% growth.
Within this CAD and <unk>, both grew double digits with strong growth across all three geographies.
This is the 17th consecutive quarter of double digit <unk> growth in the core business and as we rollout our more aggressive SaaS strategy I'll expect I expect we will see many more.
In the digital thread growth, which is Iot NAR, we saw a growth of about 14% consistent across both elements.
This was in line with our plan and the mid teens near term growth expectations. We set at the recent Investor day.
While this level of growth remains accretive to company growth. We continue to expect an acceleration of growth into the <unk> as we get into the back half of the year.
The biggest driver of growth in Q1 was from expansions, especially in Europe and APAC.
We believe market conditions, and Iot are improving and we like the way the pipeline for our new DPM offering is developing through both PTC and Rockwell channels.
For <unk>, we continue to see a tremendous level of interest, but the market remains nascent.
Perhaps most importantly, the formation of the digital thread business unit at the start of FY 'twenty til is driven important initiatives to increase our focus on cross selling of Iot and AR into the core CAD and <unk> customer base.
<unk> had a great Q1, with 6% AUR growth the expansion deal, we recently announced with the U S. Air Force both increases and extends this key relationship for up to five more years.
Contracts like this demonstrate the value that our customers are realizing from <unk> and other SSG products, such as retail BLM and AUM.
You May remember I noted at our Investor day that having <unk> grow in the mid single digits, rather than flat would be a helpful upside growth driver. So I am pleased to see <unk> post another strong quarter.
Let me run through a couple of quick.
Quick customer anecdotes to give you a sense for our digital thread customers and how they rely on us.
On slide seven.
In energy solutions is the world's top provider of large bore engines and turbo machinery for the maritime and energy industries. The.
The company manufactures complex parts in nearly every engine they make must meet unique customer requirements before.
Before implementing Korea, they relied on manual outdated processes that slowed design and production with.
With <unk>, they have been able to transition from <unk> to a full <unk> model based approach <unk>.
<unk> broad range of tool path automation capabilities enable them to save time and the programming of the topaz used to machine. The large complex engine parts greatly increasing efficiency in transitioning from design to production.
Turning to slide eight you may have noticed we announced a deal with <unk>, we announced that the German company Sheffler has expanded its relationship with PTC and I'd like to share a bit of the back story.
Jetblue has been a longtime krio customer and has successfully deployed Windsor within engineering.
But back in 2017, one of our Pls competitors announced a large pls deal with schaeffler that appeared to cap ptc's expansion opportunity.
But that system didn't ultimately stick as Schaeffer has now decided to consolidate on PDC systems with windchill being the backbone and is broadly deploying our solutions in their standard out of the box fashion. So that schaeffler can participate in the full power of our digital thread portfolio.
I'm very excited about this collaboration and the further expansion that sheffer is exploring with our Iot and <unk> offerings.
On slide nine Youll see how EMA group our global.
Business that delivers packaging machines services and solutions to a wide variety of industries was looking for a way to expand their control room offering to.
To help their customers improve overall equipment effectiveness and reduce downtime.
As long time users of Ptc's, <unk> and Windchill EMA decided that thing works was the ideal Iot solution for their initiative.
That kept where it could provide connectivity not only to their machines, but to the other vendors machines deployed alongside them.
EMA has successfully launched new revenue streams by enabling $24 seven monitoring of customer production lines and improved OE by up to 16%.
For Q4, you're integrated with thing works is the platform of choice for the U S Air Force training initiatives.
<unk> 10 highlights the work that PTC partner Vectra Ona has done with the U S Air Force.
With finite training resources and limited capacity the U S Air Force set out to incorporate augmented reality into their maintenance and munitions training.
Victrola using before your studio worked with U S Air Force to create immersive three D. AAR experiences for phones tablets and the whole lends to that are designed to accelerate learning improved work performance and facilitate remote training.
The improved training shows better engagement and information retention with continuous and repeatable task training available regardless of the system or <unk>.
Aircraft type.
Turning to slide 11, the velocity be use our growth in Q1 was more than 650% due to the inclusion of arena.
And 53% organically, which would be on shape.
If you were to add arenas pre acquisition results ended the prior year to get a better pro forma comparison than.
Then you'd have the velocity business unit growing at 28% in Q1.
That 28% as a mix of unshaped growing at 53% and the larger arena business growing in the low twenties.
Growth of both on shape, an arena is multiple times higher than market rates, clearly demonstrating that industrial companies see the benefits of SaaS.
We continue to ramp investments to expand technology leadership and to broaden the geographic presence of our velocity businesses.
On slide 12 beta technologies, a leading developer of next generation electric aircraft for the cargo growth without the workflow restrictions of traditional file based design systems.
Beta turned to unshaped because of how it enables real time collaboration, allowing the engineering team to work from any location, while streamlining their communications during the design process.
To profile and the rate of customer Potrero medical on Slide 13 is a predictive health company developing the next generation of medical devices, leveraging smart sensors and artificial intelligence.
Potrero needed a scalable quality management system to support its growing product development and compliance needs, including satisfying FDA audit requirements.
Reno was the right solution offering a cloud native <unk> with a quick implementation, leading the ECL cycle time reduction of 30% and Nonconformance improvement of 20%.
As a final topic I'd.
I'd like to give you a quick update on our SaaS acceleration initiative on slide 14.
We've made tremendous progress in the past 90 days since we announced the more aggressive strategy.
<unk>.
Onstar SaaS program management office, which was modeled after the very successful approach, we use to drive our subscription transition several years back.
Our field organizations transitioned to the new two in a box customer success organization model without missing a beat.
We converged our cloud and tech support organizations with product.
X development to deploy the Dev ops type of approach you see in virtually all SaaS companies.
We've made good progress advancing our offerings, especially the winchell multi tenant version, which will go into production. Shortly this quarter and we've made good progress preparing the SaaS conversion offerings that will power. The one hundreds of lift and shifts that will happen in the coming quarters and years, we have more work to do but we're certainly often running.
The time for SaaS has arrived in our industry and PTC is very well positioned we're already the SaaS leader in our space with continued strong SaaS growth in windchill, and SSG and high levels of growth in our cloud native velocity business unit.
Sharing the Atlas SaaS platform, we have a dual strategy to win with on shaping arena powering a new agile product development approach, while we transitioned our digital thread portfolio and existing customer base to SaaS to elevate the platform strategy is that so many larger companies have.
To wrap up on slide 15, I'm pleased with Ptc's position and the opportunity that lies ahead.
Q1 gave us a strong start to what we expect to be our fifth consecutive year of double digit <unk> growth.
Our portfolio of products is unique and compelling and obviously aligns well the customer demand.
Our results have been consistently strong for many quarters, but we are poised to accelerate growth as the SaaS tailwind blows harder in coming quarters, and as we gain more momentum with our Iot and AI initiatives in the back half of the year.
The company has never been in a better position to create shareholder value with that I'll turn it over to Christian.
More details on the financial results.
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 growth rate references will be in both constant currency and as reported rate.
So turning to slide 17, we delivered constant currency.
<unk> of $1.507 billion, which is 16% growth year over year and slightly exceeded our Q1 guidance of $1 5 billion.
On an organic constant currency basis. This is 11% growth.
FX was an approximate $11 million headwind in Q1, so our as reported <unk>.
Was 149 6 billion.
Our SaaS products in both the digital thread and velocity business units saw continued strong growth in Q1 with growth rates similar to what we discussed at our recent Investor day.
This is in combination with continued strong growth of our software only sales.
As of Q1, our SaaS portfolio is now 15% of our total IRR on a constant currency basis.
Q1 free cash flow of $134 million grew 21% year over year and includes $11 million in restructuring and other related payments.
Adjusted free cash flow was $145 million and was slightly ahead of the $140 million, we discussed at our Investor day.
And increased 7% year over year.
As we as we've discussed <unk> 606, so we do not.
I believe that revenue growth rates are indicative of our underlying business performance, but we'd rather guide you to <unk> as the best metric to understand our topline performance and cash collections.
FX only.
Impacted revenue by about $1 million in Q1, so our revenue on a constant currency basis was $459 million.
Q1.
One non-GAAP operating margin of 35% compared to 36% in Q1 of 2021.
While this is a strong result, it's still worth pointing out that because revenue was impacted by ASC 606, other derivative metrics such as gross margin operating margin and EPS are all also impacted.
Suffice it to say that our Cogs and Opex came in in line with our expectations in Q1, and we continue to maintain good discipline on our operating expense structure.
I would like to point out that our GAAP results reflect a gain of $9 $8 million related to our investment matter port.
And were also slightly reducing the range for expected P&L charges from approximately $45 million to $50 million down to $40 million to $45 million for the full year.
And coincidentally, we're also reducing the range of expected cash payments for restructuring and other.
From what was previously $50 to $55 million.
Down to $45 million to $50 million for the full year.
For guidance purposes, we will continue to show a $50 million is the cash.
<unk> and the adjusted free cash flow reconciliation, but if payments come in lower than we would just expect actual free cash flow to come in higher there is no change to the $450 million adjusted free cash flow target.
Moving to slide 18, I'll begin with our balance sheet.
We ended Q1 with cash and cash equivalents of $296 million. In addition at the end of Q1, we had medium term investments of $87 million, primarily related to our investment in matter of pool.
Our gross debt was $1 $4 5 billion with an aggregate interest rate of about three 2%.
In Q1, we used $120 million of cash to repurchase shares. We also had an additional $5 million of repurchases, which settled early in Q2.
For the remainder of fiscal 'twenty, two we will focus on de levering and.
And looking forward to FY 'twenty, three and an ongoing.
Go forward basis, assuming our debt and to slide 19.
We post a data table too.
To our IR website that has our financial statements.
As well as a detail by segment.
In that file we share both constant currency and as reported <unk>.
As a reminder, when we calculate constant currency, we use our current year plan FX rates and repo here for example on this slide you can see our Q1.
Constant currency <unk> of.
One $5 7 billion.
And the actual as reported <unk> of 1.4 dollars 96 billion.
Items at the planned rate.
We believe this is the best way to evaluate the top line performance of our business because of it.
That removes FX fluctuations from the analysis positive or negative.
With that I'll move on to guidance.
On slide 20.
As Jim mentioned, we're raising the low end of our full year constant currency guidance by $10 million. The new range is now 1625 to one 660 billion.
This essentially reflects rolling our Q1 over performance through the remainder of the year.
We're now expecting constant currency growth of 11% to 13% in fiscal 'twenty two.
It's worth pointing out that based on FX rates at the end of Q1, we would expect the $13 million headwind against that full year <unk> guidance.
For Q2, we're setting constant currency guidance of 1.501 billion. This is 12% organic constant currency growth at the midpoint impact.
Impact, we're calculating based on the FX rates at the end of Q1.
Is it $12 million headwind in Q2 compared to the constant currency guidance.
Moving to free cash flow.
We're maintaining our full year.
Free cash flow target of $400 million. This includes approximately $50 million of restructuring and acquisition related payments. The majority of these payments are really Q1 with some residual full payments primarily related to our seaport move for which we took the accounting charge in prior periods.
So.
So our adjusted free cash flow target for fiscal 'twenty, two remains $450 million.
Fiscal Q2, adjusted free cash flow is expected to be approximately $155 million, we expect to make approximately $20 million in restructuring and other related payments in Q2, bringing our free cash flow to approximately $135 million.
Moving to revenue.
We're also taking the low end of the full year revenue guidance up by $20 million.
This reflects both.
The strength in software and strength in the professional services business that we saw in Q1.
The related forecasts for the full year.
So for fiscal 'twenty, two our new revenue guidance range is 1870 to $1 97 5 billion.
The year over year growth rate range is now 3% to 9%.
ASC 606 makes revenue very difficult to predict for on premise subscription companies, hence the wide range.
Note that revenue.
Hi.
Alright.
Variability from.
600, <unk> as we continue to primarily bill customers annually upfront.
Regardless of term left.
We continue to expect more than 60% of our annual free cash.
Flow generation to occur in the first half of the year collections were stronger in the first half and we expect expenses to increase as we ramp hiring in our SaaS investments throughout the year.
Wrapping up on slide 21 with that you can see here I know many of you use <unk>.
Model free cash flow using the indirect method however, given the complexities related to revenue recognition due to 606 this is difficult to do.
The model we show here has proven quite effective.
Table shows.
Fiscal 'twenty, one actuals compared to the model, we shared at the Investor day compared to our current guidance.
Let me take you through the model focusing on the non-GAAP column on the right and starting at the top.
First we're showing the midpoint of our as reported <unk> guidance of $1 630 billion.
Which is different from the constant currency guidance that we gave due to the $13 million FX headwind.
<unk> is also $5 million lower than what we showed at the Investor day.
We use as reported here because it's a better reflection of the cash we expect to generate.
You can also see that we have increased the perpetual license revenue.
Forecast slightly and also the professional services revenue.
Increase that we mentioned earlier.
<unk> is slightly higher reflecting the increased costs to deliver the incremental professional services revenue in the rest of the assumptions remain the same and we still end up with our targeted adjusted free cash flow of $450 million.
Obviously this is a model based on assumptions such as the midpoint of our range the impact of FX, the pace of hiring et cetera. So if some of those variables change, which they invariably will the model we will have to be adjusted accordingly.
And as I mentioned earlier, if cash payments free cash flow line.
The adjusted free cash flow target would remain unchanged.
Changed.
But as we sit here today, we think this is a reasonable view of how we expect the year to shape up.
So with that I'll turn the call over to the operator, and we can begin Q&A.
Thank you. Thank you I'd like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw.
Your question. Please press star one again.
We ask the analysts please limit themselves to one question only if you have any additional questions. Please return to the queue. Thank you. Your first question will come from Andrew <unk> from Bank of America. Please go ahead. Your line is open.
Hi, yes, good afternoon.
Andrew.
Just a bigger picture question I apologize I missed the first couple of minutes.
We hear a lot about supply chain constraints and frankly, we're hearing that this might.
Extend the Ron in terms of PMI expansion.
So what are you hearing in terms of sort of a few have conversations about pls and in terms of adoption.
Kind of conversations are you having with your customers.
And the customers have awareness, so sort of supply chain is being gummed up for longer I know youre seeing this having any discernible impact on what kind of conversations you're having with people.
Yes.
Andrew It's Jim no actually it's not really it's not really a frequent topic in our conversations because.
Well first of all since you said you missed the first minutes one of the things I pointed out is that our bookings came in very very strong.
And I explained about 20% higher than plan.
Glenn So we had a very very strong bookings quarter and notable in that was pls, although frankly, the strength was broad based.
I think the key thing to remember is that <unk> is really associated with preparing aftermarket service and it's collecting data from supply chain partners and so forth but production.
<unk> in our supply chain don't necessarily impede the collaboration during the engineering and the preparation for production process. So I think people are saying like maybe I can't get.
Chips to complete the product, but that doesn't mean I should stop designing the next one.
Because if it doesn't all fall behind so I think that unaffected by the supply chain processes.
Yes, now some other things.
Perhaps COVID-19 had an impact on Iot.
Perhaps the supply chain a little bit.
Although I think muted compared to Covid. So to me the supply chain thing is.
Fairly small factor in our results, we just see very little correlation between.
Between what's happening out there with supply chain problems and what's happening with our pipeline and frankly with our bookings.
Your next question comes from Yun Kim from Loop capital. Please go ahead. Your line is open.
Thank you Hi, Jim can you just talk about the Iot business.
The large deal activity, what kind of trends are you seeing there obviously you are expecting.
That business to accelerate in the back half that can happen.
Movement into lifestyle.
Or is it just the overall volume of activity Alon Iot and then also if you can just comment around deal size activity around the <unk> business as well thanks.
Trends.
If you think what are we looking at when we project forward how Iot NAR.
We will perform while we're looking at the.
Bookings, let me say that the pipeline that.
That will drive bookings and for Iot NAR was quite strong.
We're looking at the back.
Bookings that went into backlog or I am sorry, what we call deferred AOR.
We are quite high we were well ahead of our differed.
The planned number as we exited last year. So you could imagine we've got more if you want to call it backlog waiting for us.
And then what other initiatives are we doing so for example, our DPM launch.
I think it will be materially positive for our Iot results It will drive.
Better value propositions.
Really software, that's ready to turn on and get value from as opposed to a platform.
And then the other thing is Troy Richardson talked at our Investor day about organizing better for cross sell and I think if we look backwards you know, maybe we had pivoted too much towards.
New logos, which are great I mean, new logos are wonderful thing, but we probably have low hanging fruit yet to pick within our installed base of Gadahn BLM accounts. So I think it's really this combination of.
Our strong looking pipeline.
Good looking trends awaiting us deferred backlog and then these other initiatives kicking into place DPM and cross sell I think we'll all be very helpful. As we proceed through the year.
And again I want to remind everybody we set the expectation that the two handle would materialize in the back half of the year and that you wouldn't see it in Q1 and Q2, so we sort of feel like this was as we had predicted.
Mid December couple weeks ago.
Your next question comes from Jason <unk> from Keybanc Capital markets. Please go ahead. Your line is open.
Hey, Jim.
Hey, Jason.
So one question on maybe the SaaS wind chill launch it seems like it's coming along nicely and we could see something maybe go G&A this quarter.
Have you had a chance to maybe.
Discussed.
With customers household.
Pipeline anything more or is it may be better to think that the pipeline might start to form one once we do go lives.
No. We are for sure started talking about it with customers ramping up that process. We've got to educate a lot of people and they in turn have to educate customers.
But we've certainly made some progress and I can tell you the customer interest is actually quite high.
You should note that actually customers were pushing us a little bit.
To get going with such initiatives.
So I feel like the demand is there.
And in fact again, just reflecting on what we told you.
That business has been growing about 30% and Kristian mentioned, we posted another quarter, just like that without us really invoking the new strategy yet. So there's lots of demand. We're just looking for a model where we can promote the demand because we like the margin profile better and Thats whats coming into place here in Q2.
Your next question comes from Adam Borg from Stifel. Please go ahead. Your line is open.
Great. Thanks, so much and maybe just two quick one just.
The shameful or win that you announced yesterday highlighted on the call earlier, one of the things I thought was really interesting in the press release was the opportunity around some more vertical specific or market specific solution targeting either automotive or industrial company. So maybe you could just talk about just may.
For question any way you could talk about the transition it's great to get early feedback.
Yes, I'll get the first part of the call.
So scheffler as a great accounting.
And.
As I mentioned back in <unk>.
Different direction and now they've decided to come back back into the fold in on two main reasons one is that they really.
One off the shelf.
<unk> the other competitor had told them. This low code no code started that's not really what they want they don't want to develop their own solutions.
To deploy standard out of the box office.
Or is it all works together and then they want to engage in partnerships with the vendor in this case PTC.
To talk about how those solutions should evolve to be more and more powerful to meet their needs. So yes I.
I am very excited I'm in the middle of that relationship myself.
Yes, whats going to come out of that is technology that fits bedroom or so.
It's a great win win back maybe I should say.
Okay and in a great partnership going forward.
Going to produce a lot more business for us in years.
There is to come.
And sorry, the second part of the question was around the transition to SaaS and how that's manifesting itself in terms of pipeline and activity is that right just making sure I got that right.
Exactly and you know any way to qualitatively.
Yes, well remember I mean, the bookings that we just reported for Q1.
Q1 is really when we actually just.
Just announced the acceleration of it so.
I'd say theres actually limited impact in the actual bookings result.
Here in Q1.
That said as I mentioned.
We continue to see strong demand for SaaS properties that we have that's that's both in velocity and the digital thread.
And so those.
Those products continue to grow software only.
Products and now as the program is pushing ahead.
Yes.
We expect to see.
Demand in pipeline generate especially with the wind chill with the new windshield launch coming out here.
And the program continuing to pick up speed speed internally, maybe Adam I could just add.
We launched this.
Phase III strategy 90 days ago on the earnings call and.
There's nothing we've seen.
That makes us any less bullish than we were back then I mean, it looks like a real.
Or closer in so it has a bigger impact on 'twenty, three and 'twenty four and so forth than it would otherwise have had.
Your next question comes from Jason <unk> from Griffin Securities. Please go ahead. Your line is open.
Thank you Hello Hydrogel my question.
A couple of things with regard to the strength you'd noted core pls.
At your partner conference six months ago back in the summer of management presented to the channel. Your concept that <unk> was no longer just an engineer involved that it was becoming memorial which you called multi system multi discipline concept.
And the question is to what extent is that broader more diverse view of pls.
A current part of.
Thinking about <unk>.
By our calculation you are already in the second.
These are to that and then just a quick clarification you referred earlier to cross sale at.
At the analyst.
Meaning last month in the slide deck, you referred the cross sell 10 times.
And Relatedly account based selling.
<unk> is often over the years talked about cross sell but maybe talk about what's different this time in terms of resources and programs across your various segments.
And your new customer segmentation model.
Yes.
On your first question Jay.
We're always very prescient, we say multi system multi discipline, what we're really talking about is an enterprise system.
Change the.
The.
The system of record for the product definitely.
Factoring will you need to know the product definition. If you are in procurement you need to know the product definition, if youre out on an installation of our support call you probably need to know the product definition. So definitely what's happened is that the enterprise.
Times larger than the engineering deployments of windshield, so something thats been driving growth for some years now is that the new deals. We are taking are more and more frequently.
Enterprise deals in their larger you may remember last quarter I told you. We took the largest deal we had taken to date.
From a med device company.
And the second thing Thats happened.
Now to the enterprise solution.
Opportunity for us so definitely.
That's a real thing and it's been driving.
For years, and frankly, there is a lot.
Before we start talking about SaaS, the upsell from a departmental solutions.
The enterprise solution is a driver.
It's a whole another growth driver that's on top of that and sort of orthogonal to us.
And then on the account based selling.
There's two ways to look at that.
Cross selling into your accounts is is a great thing.
You have established relationships.
It's much easier to sell another product to existing customer than to sell a new product to a new customer or a first product to a new customer at the same time, we like new logos. So it's really always about the balance.
How much do you.
Perhaps with Iot and AR.
We realized we had over pivoted.
Toward new logo, which is just generally speaking less productive selling we formed this digital thread group, which brought cat in PLO.
The Iot and AR.
Gather under Troy Richardson was to really lubricate, how these products work together and how we position them together and to be able to start anywhere and sell up and it's one that it's a muscle.
Developed well over the years we.
So we built the windchill business largely by cross selling to the grille base and I think this is going to be something that will help us.
Russell.
Your next question comes from Ken Wong from Guggenheim Securities. Please go ahead. Your line is open.
Thank you so much for taking my question.
Jim or Christian I wanted to dive into the double digit organic bookings growth.
Spansion deal with the Air Force.
That was already in expectations or did you get some some boost there from some timing shifts.
So or anything of that nature.
Yes.
Let me tell you none of that actually contributed to the double digit growth because that was a Q4 deal.
We released it when we had approval to release it and I commented on it because it was an important cut.
Customer and so forth and let me say that deal again.
Again that was closed in Q4.
Both represented five years of extension, but also about a 50% growth.
Two a $15 million run rate.
Over three years and stays there.
For a couple more.
That's what the contract contemplates so some of that will come into <unk>.
In Q4 of this year, but the bookings actually were in Q4 of last year, so that strength.
The strength, we saw in Q1 was exclusive of that.
Air Force deal, which just means was really great strength.
So anyway.
It was hard to pin down where the strength came from because it came from cat It came from <unk>.
Iot number was actually pretty decent that did not go into <unk>.
And then of course, the velocity numbers in the <unk> numbers. So it was broad based in all geographies and really in all product lines.
Your next question comes from Matt Brown from Mizuho Mizuho Securities. Please go ahead. Your line is open.
Thanks, Matt.
Thanks, Jim.
I guess just on that.
Thanks deal that I just mentioned.
Tim.
Given the importance of supply chain management right now.
Are you seeing ramping demand the solution elsewhere.
And following on from that is very challenged.
FSC.
Taxi accelerates.
On the back of that demand beyond the mid single digit level and actually become sort of more strategic anyway.
Yes, I mean thats one of the points, Matt that I brought up at the modeled <unk> to be roughly flat flat plus 1% to 2%, but it was up 6% here again in Q1. So yes, we're over performing and <unk> is one of the key drivers and then the second one.
Probably as retail BLM, which has also been doing fairly well.
So.
Definitely there is some.
I think we will be conservative and leave the SSG.
Sort of guidance, where it is in the near term, but I do like over performing it because it's a growth driver.
The SSG business Stifel.
Your next question comes from Matt Hedberg from RBC Capital markets. Please go ahead. Your line is open.
Yes, Thanks, Matt <unk> on for Matt.
Kind of follow up on a piece of both.
Adam James question.
So looking at the Schaeffler announcement I think that the thing I was really interested in was the idea around standardization and the idea around the end to end. So can you talk a little bit about your.
Sam I think one of the upside areas.
That's something we may be the Holy Grail of the transition would be more competitive displacements and I'm. Just curious are you starting to hear any early or more.
Subjects are differentiated.
Yes, I mean for sure. So the standard thing I think may.
Maybe over the last couple of years industrial companies have realized.
Holding it and so we saw this in our Iot business and that's why we've been heading up the stack with solutions like DBM as customers would like to buy the software and use it.
Because it just don't really know how to create different Frank So schaeffler had gone down the path of kind of like I said low code sort of environments and came back to standard products and then the end to end thing for sure that the CAD data that's correct.
Created in Korea, and managed and windshield gets used for example in augmented reality manufacturing and service instructions. Much later and then a different part of the company if its all well managed and that connectivity from Iot, while let's say from <unk> to Iot.
Ah is what we call the digital thread and so we actually see so much interest in this that we kind of organized around that principle lets stop presenting these products is kind of independent things and less shine a light on how well they work together in an end to end solution and by the way how theyre already to go.
This is something you just turn on and use and that's really what one schaeffler over but I can tell you <unk> not unique at all and it's really.
We're organizing to respond to that SaaS.
SaaS is helpful by the way because if you want a lot of technology working end to end it would be better not to ship at all to the customer site because it gets complicated the customer would like to just use it not set it all up in and care and feed for an on premise.
Yes.
Your next question comes from <unk> Kalia from Barclays Capital. Please go ahead. Your line is open.
Okay, Great Hey, guys. Thanks for taking my question here.
Okay, Hey, Jim Hey, Jim maybe a question Jim maybe for you.
It was great to hear the <unk> strength this quarter in bookings.
With other companies that have done shifts like this there is always a risk I guess.
Customers behaving differently.
Whether thats slowing purchases to see what's coming or maybe pulling forward purchases before something new comes out now.
Just to be clear it doesn't it doesn't sound like that happened here.
Can you just stress test that for us a little bit and what you sort of look at to sort of manage what is more choices for our customer to make.
Does that makes sense.
Yes are you referring just let me clarify are you referring to like SaaS choices being new choices or yes, that's right when shale no.
Windshield, specifically, yes, so keep in mind second we have been selling winchell SaaS for some time remember the phase I phase II phase III thing so.
So since phase one we've been selling when shell and we showed you. It's got a three year growth CAGR of 30% in SaaS.
The customer demand is strong and it's just on the PTC side, we need to pivot to multi tenant because in the single tenant model. We just don't have the profitability. We like so the demand is strong the customers are buying and Kristian mentioned, we had another strong quarter.
So it really is we'd like to meet that demand with a solution that is more efficient for us to operate on behalf of the customer and Thats what phase III multi tenant really is all about now when it becomes more efficient for US. We can then lean in on the promotion and marketing of it because we haven't really done that so we've been servicing demand not driving it.
And with Phase III, we think theres, an opportunity to drive demand and.
The preliminary data we have seen this quarter.
It was very receptive both to <unk>.
Buying new systems that way, but also to lifting and shifting the previous systems, they bought and giving them to us to operate and serve back to them in a SaaS model.
Your next.
Comes from Joe <unk> from Baird. Please go ahead your line is open.
Great.
Hey go back to bookings.
<unk> this quarter absent Mega deal suggest anything about.
The demand environment or maybe just the health of your Midmarket and SMB customers and.
And looking ahead are there going to be a certain things you think about our track when contemplating the probability.
Mega deals are.
The larger contributors for PTC, maybe dig a bit more represented in each of bookings.
Christian let me again take a stab at that and maybe youll find things to add.
So I think if you look at the bookings again, there were phenomenal and it's hard to pin down it wasn't one geography. It wasn't one product that was all geographies all products. So I think it tells us that the end market is <unk>.
<unk> healthy and I would say for two different reasons on one hand, the PMI are in good shape. That's helpful on the other hand.
The interest they have in the digital thread digital transformation story and the interest they have in SaaS is secular.
That interest is not related to the PMI is kind of independent of them and so I think that we're just in a very healthy situation where.
Industrial companies are leaning in on trying to get more digital they see PTC is having a fairly unique and compelling portfolio and.
They're interested in engaging in trying to make their companies more efficient I can tell you that schaeffler. For example is one of the top initiatives in the company is to get more digital and as it relates to the whole product lifecycle, the partner's PTC and we see that kind of phenomenon happening.
A lot of places in the industrial World. So I think it's just good strong secular and as well macro.
Environment out there right now, but I'll remind you that we've had good performance even when the macro environment wasn't so strong so all things being equal I like the strong macro but were 17 quarters in with double digit growth in the core business and there were a lot of bad macro quarters over.
Over the course of those 17, so I think it really is the secular driver.
Christian I think yes.
Agree with all that I mean actually just on the big deal dynamic.
We used to call Mega deals.
We haven't really.
We have had for in the past four years, yes, well keep in mind perpetual.
Drove bigger upfront purchases.
And subscription or SaaS tends not to.
Yes. It was not my point that we have been seeing good strong bookings performance in bookings growth.
Even with the absence of what used to be a fairly regular occurrence back in the perpetual days like we really don't see a lot of those good healthy business.
Okay next question.
Your next question comes from Blair Abernethy from Rosenblatt Securities. Please go ahead. Your line is open.
Thanks, very much guys.
Maybe a quick question on around partnerships in particular I am wondering if you just give us a little.
A little deeper dive into how things are going with Rockwell.
And as well on the simulation side with answers.
Yes.
So the state of the partner economy is good and Microsoft that could put on that list is also strong.
With Rockwell Youll remember.
In the past.
<unk> I had said, we should take a bit of a.
Conservative posture.
As it relates to what Rockwell would contribute to pdc's numbers here in fiscal 'twenty two.
And we did that because Rockwell had made a big acquisition.
Rockwell never completely agreed with me on that their own public commentary kind of indicated they didn't worried too much about that and that in Q1 they were right. So.
We're pleased to see that Rockwell's contribution was solid in Q1.
Starting to feel pretty good about the year I'll tell you. One thing is this DPM solution appears to be a very good fit with Rockwell and in fact, there calypso arm is probably lined up to be our strongest partner in promoting DPM. So we're very happy with that Calypso is a long term relationship with PTC.
Even predates their acquisition by by Rockwell, So great alignment around DPM again, DPM is a high value up the stack solution that drives a bigger deal sizes, and we think will be a very sticky solution.
Lots of optimism around that.
With answers we continued to differentiate now with best in class simulation, so, whereas stimulation. Some years back would have been viewed as a soft spot for PTC now it's a strength.
Competing against Autodesk or Siemens or dissolve nobody is going to have a better stimulation story than PTC, because nobody has a bit of simulation story of <unk> and <unk> products are built into PVC products. So that's been going well and then of course with.
With Microsoft that partnership is performing well and poised to get a lot bigger because as we bring more stuff aggressively to SaaS a whole lot of that is going to land on azure. So.
I think all three partnerships are alive, and well and as important as ever and helping helping us achieve the kind of results that we are.
Hi, Jamie.
Your last question comes from Sterling Auty from J P. Morgan. Please go ahead. Your line is open.
Yeah. Thanks, Hi, guys. Just wondering if you could characterize with the head count changes that you pointed out are necessary to facilitate the acceleration to SaaS where are you in that process. What's left to go and kind of what's the timeframe that you expect to complete that over.
Yes, Christian I am thinking of the numbers were largely done but not completely.
80%, 90% done with the.
Exiting yes, I mean, we'll be hiring people throughout the year, so but in terms of that.
People are exiting their largely exited by now that largely happened within the first quarter.
Understood. Thank you.
We have no further questions I'd like to turn the call back over to Jim Hoffman for closing remarks.
Okay, well. Thank you all those a lot of good a lot of good questions and.
I think good answers because the business is performing very well right now.
<unk> is doing well bookings are doing well.
Free cash flow is is doing well.
I think we executed through good times and bad we executed through the changes we've made over the last quarter and we're set up to do pretty well for the balance of the year.
So we're very confident and.
Look forward to talking to you all in 90 days, if we don't happen to cross paths with you sooner than an investor event or what have you. So thanks, a lot for joining us and have a good evening.
Thanks, everyone.
This concludes today's conference call you may now disconnect.
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