Q4 2023 PTC Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to P. T 620, 23 fourth 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 your questions I would now like to turn the call over to Matt Shea.

Now P T CS head of Investor Relations. Please go ahead.

Good afternoon. Thank you Danica and welcome to Ptc's 2023 fourth quarter conference call on the call today are Jim help them M. C E O milberger, our CEO elect and Kristian Talvitie CFO.

Today's conference call is being broadcast live through an audio webcast and a replay of the call will be available later today at Www Dot P. T C dot com.

During this call PTC will make forward looking statements, including guidance as to 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 concerning factors that could cause actual results to differ materially from those in the forward.

Looking statements can be found in Ptc's annual report on Form 10-K 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 this call are valid only as of today's date November <unk> 2023, and PTC assumes no obligation to update these forward looking statements.

Unknown Attendee: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to PTC's 2023 Fourth Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode.

During the call PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures. The most directly comparable GAAP measures can be found in today's press release made available on our website.

Unknown Attendee: Following the presentation, the conference will be open for questions.

Matthew Shimao: I would now like to turn the call over to Matt Shimao, PTC's Head of Investor Relations. Please go ahead. Good afternoon. Thank you, Danica.

Matthew Shimao: And welcome to PTC's 2023 Fourth Quarter Conference Call. On the call today are Jim Heppelman, CEO, Neil Barua, CEO-Elect, and Christian Palpatia, CFO. Today's conference call is being broadcast live through an audio webcast and a replay of the call will be available later today at www.pTC.com. During this call, PTC will make four-looking statements, including guidance as the future operating results. Because such statements deal with future events, actual results will be available later today at www.pTC.com.

With that I'd like to turn the call over to Ptc's CEO Jim <unk>.

Thanks, Matt.

Good afternoon, everyone and thank you for joining us as.

As usual I will focus on constant currency results when discussing top line metrics and Christian will cover currency effects later in the call.

I'm pleased to report that in the fourth quarter PTC again delivered solid financial results in terms of <unk> and free cash flow, which are the most important metrics to assess the performance of our business.

Matthew Shimao: During this call, PTC will make four-looking statements, including guidance as the future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the four-looking statements. Additional information concerning factors that could cause actual results differ materially from those in the four-looking statements can be found in PTC's annual report on Form 10K, Form 10Q, and other filings with the US Securities and Exchange Commission, as well as in today's press release. The four-looking statements, including guidance, provided during this call, are valid only as of today's day. November 1st, 2023, and PTC assumes no obligation to update these four-looking statements.

Reflecting on the full year, which will be my last year in the CEO seat fiscal.

Fiscal 'twenty three has been one of Ptc's best years ever.

Despite a challenging economy, we delivered our seventh consecutive year of double digit top line growth.

With a growing 23%.

13% organically and revenue crossing the $2 billion threshold.

And on the bottom line, we delivered 41% growth in free cash flow.

This performance is a great stepping up stepping off point for me as I hand, the range of the company to Neil Barilla going forward.

Matthew Shimao: During the call, PTC will discuss non-gap financial measures. These non-gap measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-gap financial measures, the most directly comparable gap measures, can be found in today's press release made available on our website.

Given the CEO transition that's actively underway during this call I'll focus my comments on Q4 and fiscal 'twenty, three and let Neil take the lead on forward looking commentary.

Coming back to the Q4 results.

James Heppelmann: With that, I'd like to turn the call over to PTC CEO Jim Heppelman. Thanks, Matt. Good afternoon. Good afternoon, everyone, and thank you for joining us. As usual, I will focus on constant currency results when discussing top-line metrics, and Christian will cover currency effects later in the call. I'm pleased to report that in the fourth quarter, PTC again delivered solid financial results in terms of ARR and free cash flow, which are the most important metrics to assess the performance of our business.

And turning to slide four though the manufacturing PMI have indicated a sluggish global environment for many quarters now our topline air or continues to show good resilience.

In Q4, we saw a broad based strength across our product groups and geographies.

Our churn remained low and for the full year, we did better than the churn targets, we had shared previously.

Customer demand was solid in Q4 up overall and on an organic basis in line with the exceptional results. We delivered in Q4 last year.

James Heppelmann: Reflecting on the full year, which will be my last year in the CEO seat, fiscal 23 has been one of PTC's best years ever. Despite a challenging economy, we delivered a seventh consecutive year of double-digit top-line growth with ARR growing 23%, 13% organically, and revenue crossing the $2 billion threshold. And on the bottom line, we delivered 41% growth in free cash flow.

Within this context the portion of business.

We signed in Q4, but that did not start in Q4 of fiscal 'twenty three was greater than we had modeled.

Since <unk> only kicks in when the subscription starts Q4, <unk> was $8 million lower than we had modeled while deferred AOR is consequently 8 million higher.

With this influx or total deferred is now 20 million higher than it was at the beginning of fiscal 'twenty three.

James Heppelmann: This performance is a great stepping-off point for me as I hand the reins of the company to Neil Barua going forward. Given this CEO transition that's actively underway, during this call, I'll focus my comments on Q4 and fiscal 23, and let Neil take the lead on forward-looking commentary. Coming back to the Q4 results, and turning the slide four, though the manufacturing PMIs have indicated a sluggish global environment for many quarters now, our top-line ARR continues to show good resilience.

Christian will explain that because of this added strength in deferred are are we are now guiding air are to grow 11% to 14% in fiscal 'twenty four higher than the 10% to 14% growth range, we discussed previously.

Moving to slide five and switching to our Bottomline deal. We delivered 44 million of free cash flow in Q4 ahead of our guidance and up 52% year over year.

For the full year, our free cash flow, our free cash flow was $587 million ahead.

James Heppelmann: In Q4, we saw a broad-based ARR strength across our product groups and geographies. Our churn remained low, and for the full year we did better than the churn targets we had shared previously. We did not start in Q4 or fiscal 23 was greater than we had modeled. Since ARR only kicks in when the subscription starts, Q4 ARR was 8 million lower than we had modeled, while deferred ARR is consequently 8 million higher.

Ahead of our guidance and up 41% year over year.

Remember that <unk> is the primary driver of cash flow. So this robust result was driven by a combination of strong are our growth and higher operating efficiency.

In fiscal 'twenty, three we delivered 38% operating efficiency, which was 620 basis points higher than fiscal 'twenty to well above our initial target they called for approximately.

450 basis points of improvement in operating efficiency.

We expect these operating efficiency improvements to be sustainable and we think our subscription business model will continue to provide us with operating leverage.

Turning to slide six let's look at our growth by geography.

Our growth in the Americas was 25% in Europe are our growth was 24% and in APAC AOR growth was 18% regionally compared to a quarter ago. The gap between as reported and constant currency are widened in Europe and narrowed in APAC.

James Heppelmann: With this influx, our total deferred ARR is now 20 million higher than it was at the beginning of fiscal 23. Christian will explain that because of this added strength in deferred ARR, we are now guiding ARR to grow 11 to 14% in fiscal 24, higher than the 10 to 14% growth range we discussed previously. Moving to slide 5 and switching to our bottom line view, we delivered 44 million of free cash flow in Q4 ahead of our guidance in up 52% year over year.

On a global basis in Q4, our constant currency are our growth was 3% less than our reported are our growth.

Versus prior quarters, we saw improved demand in China and in our SMB reseller channel.

All three regions benefited from inorganic growth to varying degrees due to the acquisition of servicemaster.

James Heppelmann: For the full year, our free cash flow was 587 million ahead of our guidance in up 41% year over year. Remember that ARR is the primary driver of cash flow, so this robust result was driven by a combination of strong ARR growth and higher operating efficiency. In fiscal 23, we delivered 38% operating efficiency, which was 620 basis points higher than fiscal 22, well above our initial target, to go for approximately 450 basis points of improvement in operating efficiency. We expect these operating efficiency improvements to be sustainable, and we think our subscription business model will continue to provide us with operating leverage.

Next let's look at our performance of our product groups on slide seven.

In CAD, we delivered 10% are our growth in Q4.

Within these results the growth magnitude was primarily driven by krill, but supplemented by strong percentage growth in non shape.

PTC is taking share in different parts of the CAD market with both products and we're excited about the potential of our new <unk>, plus SaaS offering as well as on chip.

We launched <unk> plus at LIBOR event. This past may and the initial customer demand for <unk> plus has been encouraging.

Regarding on shape.

With NPS scores that lead the industry by a considerable margin and solid retention rates, we see good opportunities to take share in the part of the CAD market that unshaped focuses on.

James Heppelmann: Turning to slide 6, let's look at ARR growth by geography. ARR growth in the Americas was 25% in Europe, ARR growth was 24% and in APAC, ARR growth was 18%. Originally, compared to a quarter ago, the gap between as reported in constant currency ARR widened in Europe and narrowed in APAC. On a global basis in Q4, our constant currency ARR growth was 3% less than our reported ARR growth. Versus prior quarters, we saw improved demand in China and in our SMB reseller channel. All three regions benefited from intergranic growth to varying degrees due to the acquisition of service max.

Garments recent decision to replace their incumbent Gad system with unshaped speaks to the products maturing functionality and competitive differentiation.

In <unk>, our <unk> growth rate in Q4 was 34% or 15% organic with the incremental inorganic growth coming from servicemaster.

<unk> growth in Q4 was primarily driven by windchill, but supplemented by strong organic growth in a L. M. Thanks to code Beamer.

<unk> proven to be a great addition to our portfolio with strong demand coming from manufacturing companies.

James Heppelmann: Next, let's look at ARR performance of our product groups on slide 7. In CAD, we delivered 10% ARR growth in Q4. Within these results, the growth magnitude was primarily driven by Creole, but supplemented by strong percentage growth and on shape. PTC is taking share in different parts of the CAD market with both products, and we're excited about the potential of our new Creole Plus SaaS offering as well as on shape. We launched Creole Plus at LiveWorks event this past May, and the initial customer demand for Creole Plus has been encouraging.

Might already be proficient at managing hardware development, but are struggling to deal with a growing wave of software complexity.

While demand is most notable in the automotive industry due to the rise of software defined vehicles, we see customer demand for a L. M tools expanding in other verticals as well driven by the trend towards software driven products of all types.

Not only do manufactured products contain more software than ever but there has been an explosion of software configurations that need to be developed and maintained across our companies different product lines.

James Heppelmann: Washington. Regarding on-shape, with NPS goers that lead the industry by a considerable margin and solid retention rates, we see good opportunities to take share in the part of the CAD market that on-shape focuses on. Garmin's recent decision to replace their incumbent gadgets and with on-shape speaks to the products, maturing functionality, and competitive differentiation. In PLM, our ARR growth rate in Q4 was 34% or 15% organic, with the incremental, inorganic growth coming from service max.

Including across model years sales options and cloud deployments.

That's why we supplemented our code beam or a L. M solution with the acquisition of pure systems.

You probably know that on the hardware side of the manufactured product configuration management has always been the special sauce of windchill.

Now with the addition of the peer Varian solution code Beamer, we'll be able to offer equally robust configuration management for the software side of the product.

The peer systems company is relatively small, but they're breakthrough peer variance offering has already landed early wins at many of the same auto and industrial companies that are adopting code beamer.

James Heppelmann: ARR growth in Q4 was primarily driven by windshield, but supplemented by strong organic growth in ALM, thanks to Codebeamer. Codebeamer has proven to be a great addition to our portfolio, with strong demand coming from manufacturing companies that might already be proficient at managing hardware development, but are struggling to deal with a growing wave of software complexity. While demand is most notable in the automotive industry due to the rise of software-defined vehicles, we see customer demand for ALM tools expanding in other verticals as well, driven by the trend toward software-driven products of all types.

Introducing this key competitive differentiator and value proposition in Dakota, Beamer makes our position in the a L M.

Market, even more promising.

We've been taking significant share in the BLM market and are well positioned going forward with our strength in core peel them with windchill and arena.

Complemented by strong positions in the faster growing <unk> and SLM parts of the market.

Wrapping up my comments then.

First I'd like to say a heartfelt. Thank you to all of you have supported me and my team over the years.

James Heppelmann: Not only do manufacture products contain more software than ever, but there has been an explosion of software configurations that need to be developed and maintained across a company's different product lines. Including across model years, sales options, and cloud deployments. That's why we supplemented our Codebeamer ALM solution with the acquisition of pure systems. You probably know that on the hardware side of the manufactured product, configuration management has always been the special source of wind shell.

Your insights and support have helped us to transform PTC into the awesome company. It is today.

2 billion dollar scale growth and profit leader with a unique product portfolio that helps our manufacturing customers digitally transform their businesses.

I'm personally very proud of what the PTC team has accomplished during my 13 years as CEO and much longer tenure as the Companys technology and strategy leader.

James Heppelmann: Now, with the addition of the pure variant solution, Codebeamer will be able to offer equally robust configuration management for the software side of the product. The pure systems company is relatively small, but their breakthrough pure variance offering has already landed early winds at many of the same auto and industrial companies that are adopting Codebeamer. Introducing this key competitive differentiator and value proposition into Codebeamer makes our position in the ALM market even more promising.

I feel things are in good position to transition the leadership to Neil Barilla.

There will be supported by the same team who drove our transformation.

Including Christian Mike the Tulio, Aaron Bond stats, Kevin ran Steve their team Kathryn King occur and thousands of other PDC employees.

I wish them all the best as they evolve the business in pursuit of new ways to create value for our customers and shareholders under Neils leadership, just as they did during mind.

I will remain in the background supporting Neil through February, but I plan to let him take the stage in investor discussions going forward.

James Heppelmann: We've been taking significant share in the PLM market and our well position going forward with our strength and core PLM with wind shell and arena, complemented by strong positions in the faster growing ALM and SLM parts of the market.

With that I'll hand, the call over to Neil to share his perspectives on the CEO transition and the future of the PDC business.

Thanks, Jim Hello, everyone, let's turn to slide nine.

James Heppelmann: Rapping up my comments then, first I'd like to say heartfelt thank you to all of you have supported me and my team over the years. Your insights and support have helped us to transform PTC into the awesome company it is today, a $2 billion scale growth and profit leader with a unique product portfolio that helps our manufacturing customers digitally transform their businesses. I'm personally very proud of what the PTC team has accomplished during my 13 years of CEO and much longer tenure as the company's technology and strategy leader.

The CEO transition is progressing well and according to plan I'm excited to soon step into the CEO role and I appreciate everything Jim is doing to ensure a seamless transition.

Much of the past quarter traveling with Jim to visit customers employees and partners.

These meetings have been good opportunity for me to listen and to build relationships with key stakeholders. These.

These meetings have also reinforce how relevant our software is to our customers' digital transformation initiatives PTC has established a strong position with customers and it is clear to me that there continues to be a lot of opportunity ahead, but.

James Heppelmann: I feel things are in good position to transition the leadership to Neil Burrula. Neil will be supported by the same team who drove our transformation, including Christian, Mike Detullio, Aaron von Statz, Kevin Ren, Steve Dirtine, Catherine Kinnecker and thousands of other PTC employees. I wish them all the best as they have all the business and pursuit of new ways to create value for our customers and shareholders under Neil's leadership, just as they did during mine. I will remain in the background supporting Neil through February, but I plan to let him take the stage and invest their discussions going forward.

We're also starting to meet with investors and analysts and I'm looking forward to continuing and deepening the two way dialogue.

To that end I'm looking forward to callbacks with many of you as well as some investor roadshows upcoming and conferences.

And we're working on nailing down a date for an investor day likely in the spring after the CEO transition.

More broadly I've been immersing myself in all aspects of Ptc's business. As one example, I worked closely with our team on the wind at Volkswagen Group that we announced yesterday.

This significant expansion of Ptc's footprint at VW underscores the value PTC brings to customers and our customers rely on us to support the product development needs at scale.

Neil Barua: With that, I'll hand the call over to Neil to share his perspectives on the CEO transition and the future of the PDC business. Thanks, Jim. Hello, everyone. Let's turn to slide nine. The CEO transition is progressing well and according to plan. I'm excited to soon step into the CEO role, and I appreciate everything Jim is doing to ensure a seamless transition. I spent much of the past quarter traveling with Jim to visit customers, employees and partners.

Our teams understand the digital transformation needs of our customers and we have the right strategy and product portfolio to help them achieve their goals.

No other company that can help manufacturers drive closed loop product lifecycle management across engineering manufacturing quality and service.

PTC is in a very healthy position and I am energized by the business that has been built in a job ahead.

Neil Barua: These meetings have been good opportunities for me to listen and to build relationships with key stakeholders. These meetings have also reinforced how relevant our software is to our customers' digital transformation initiatives. PDC has established a strong position with customers, and it is clear to me that there continues to be a lot of opportunity ahead. I've also started to meet with investors and analysts, and I'm looking forward to continuing and deepening the two-way dialogue.

Next let's turn to slide 10.

On the Q3 call we shared this framework, which shows the layers of cumulative drivers that support our topline growth.

Fiscal 'twenty four is expected to be our eighth consecutive year of double digit constant currency growth. So ptc's ability to put up consistent double digit growth is well established.

This is a good framework to understand the sustainability of our topline performance.

Neil Barua: To that end, I'm looking forward to callbacks with many of you, as well as some investor road shows upcoming and conferences. And we're working on nailing down a date for an investor day, likely in the spring after the CEO transition. More broadly, I've been immersing myself in all aspects of PDC's business. As one example, I work closely with our team on the Winnet Volkswagen Group that we announced yesterday. This significant expansion of PDC's footprint at BW underscores the value PDC brings to customers and how customers rely on us to support their product development needs at scale.

I won't go through each of the drivers now, but the takeaway is that all the layers contribute to our growth.

PTC is clearly moving in the right direction and my focus as the new CEO will be on ensuring a disciplined and metrics driven execution of the strategy.

Moving to slide 11.

We also shared this framework on our Q3 call, which shows the layers of cumulative drivers that support our bottom line growth.

It is important to recognize that our strong free cash flow growth in recent years is attributable not only to our solid top line growth, but also to a subscription license business model and strong operational discipline.

Neil Barua: Our teams understand the digital transformation needs of our customers, and we have the right strategy and product portfolio to help them achieve their goals. There's no other company that can help manufacturers drive closed loop product lifecycle management across engineering, manufacturing, quality, and service. PDC is in a very healthy position, and I am energized by the business that has been built in a job ahead.

Focusing on operational execution is essential to consistently deliver for our customers and our shareholders.

As with the previous slide all the layers in this framework are important and I see good opportunities to further expand our operating efficiency.

I want to reiterate that with our subscription model and operational discipline, we expect our free cash flow to grow faster than our <unk> over the midterm.

Neil Barua: Next, let's turn to slide 10. On the Q3 call, we shared this framework, which shows the layers of cumulative drivers that support our top line growth. Physical 24 is expected to be our eighth consecutive year of double digit, Concentrancy ARR growth. So PDC's ability put up consistent double digit growth is well established. This is a good framework to understand the sustainability of our top line performance. I won't go through each of the drivers now, but the takeaway is that all the layers contribute to our growth. PDC is clearly moving in the right direction, and my focus as a new CEO will be on ensuring a disciplined and metrics driven execution of the strategy.

As we reinvest in our business to drive growth, we expect to do so prudently such that non-GAAP operating expenses are expected to grow at roughly half the rate of our <unk> overtime.

Let's turn to slide 12.

Today, we are providing targets to reflect solid topline and bottom line growth over the medium term, which Christian will take you through in more detail.

As you will hear from Christian for fiscal 'twenty, six we were targeting a growth in the mid teens and free cash flow of approximately $1 billion.

If there is one takeaway from my comments today, it should be that I am singularly focused on leading PTC to execute to its full potential as the company's next CEO I strongly believe that we have the right strategy organization and product portfolio to drive consistent customer and shareholder value in the years ahead.

Neil Barua: Moving to slide 11, we also shared this framework on our Q3 call, which shows the layers of cumulative drivers that support our bottom line growth. It is important to recognize that our strong free cash flow growth in recent years is attributable not only to our solid top line growth, but also to our subscription license business model and strong operational discipline. Focusing on operational execution is essential to consistently deliver for our customers and our shareholders.

Over to you Kristian.

Thanks, Neil and Hello, everyone, starting off with slide 14.

In Q4 23 are constant currency <unk> was 194 1 billion up 23% year over year and in line with our guidance range on an organic constant currency basis, Excluding service Max our <unk> was $1 77 billion up 13% year over year.

Neil Barua: As with the previous slide, all the layers in this framework are important, and I see good opportunities to further expand our operating efficiency. I want to reiterate that with our subscription model and operational discipline, we expect our free cash well to grow faster than our ARR over the midterm. As we reinvest in our business to drive growth, we expect to do so prudently, such that non-gap operating expenses are expected to grow at roughly half the rate of our ARR over time.

In Q4, our as reported <unk> was $38 million higher than our constant currency.

Also in Q4, <unk> was impacted by $8 million due to start date timing.

The key point is we can drag we contracted the overall amount of business that we guided to.

Neil Barua: Let's turn to slide 12. Today we are providing targets to reflect solid top line and bottom line growth over the medium term, which Christian will take you through in more detail. As you will hear from Christian, for fiscal 26, we are targeting ARR growth in the midteens and free cashflow of approximately 1 billion. If there is one takeaway from my comments today, it should be that I am singularly focused on leading PTC to execute to its full potential. As the company's ex-CEO, I strongly believe that we have the right strategy, organization, and product portfolio to drive consistent customer and shareholder value in the years ahead.

At the beginning of the quarter and in year starts landed as expected we would have been around the high end of our guidance range now with approximately $20 million more deferred.

In fiscal 'twenty four.

Starting in fiscal 'twenty, four compared to what started in fiscal 'twenty three we're increasing our fiscal 'twenty four guidance range to 11% to 14%.

Moving on to cash flow our results were solid and ahead of our guidance with Q4 operating cash flow of $50 million in free cash flow of $44 million for the full year, our free cash flow was $587 million up 41%.

Christian Palpatia: Over to you, Christian. Thanks, Neil, and hello, everyone, starting off with slide 14. In Q423, our constant currency ARR was 1.941 billion, up 23% year over year and in line with our guidance range. Organic constant currency basis, excluding service max, our ARR was 1.77 billion, up 13% year over year. In Q4, our as reported ARR was $38 million higher than our constant currency ARR. Also in Q4, our ARR was impacted by 8 million due to start date timing.

When assessing in forecasting our cash flow, it's always good to remember a few things the majority of our collections occur in the first half of our fiscal year and Q4 is our lowest cash flow generation quarter.

And on an annual basis free cash flow is primarily a function of a R R rather than revenue.

Q4 revenue of $547 million increased $39 million or 8% year over year and was up 6% on a constant currency basis.

For the full year revenue was 2.097 billion up 8% or 12% on a constant currency basis.

Christian Palpatia: The key point is we contracted the overall amount of business that we guided to at the beginning of the quarter. At in-year starts, landed as expected, we would have been around the high end of our guidance range. Now with approximately 20 million more deferred ARR in fiscal 24, starting in fiscal 24 compared to what started in fiscal 23, we're increasing our fiscal 24 guidance range to 11 to 14%. Moving on to cash flow, our results were solid and ahead of our guidance with Q4 operating cash flow of 50 million and free cash flow of 44 million.

As we've discussed previously revenues impacted by ASC 606, So we do not believe that revenue or EPS are the best indicators of our underlying business performance, but we'd rather guide you to a or are in free cash flow is the best metrics to understand our business and cash.

Generation potential.

Moving to slide 15, we ended the fourth quarter with cash and cash equivalents of $288 million. Our gross debt was 2.322 billion with an aggregate interest rate of five 7%.

Christian Palpatia: For the full year, our free cash flow was 587 million, up 41%. When assessing and forecasting our cash flow, it's always good to remember a few things. The majority of our collections occur in the first half of our fiscal year and Q4 is our lowest cash flow generation quarter. And on annual basis, free cash flow is primarily a function of ARR rather than revenue. Q4 revenue of 547 million increased 39 million or 8% year over year and was up 6% on a constant currency base.

During Q4, we paid down $43 million of debt and at the end of Q4, we had $1 billion in high yield notes of $500 million term loan and approximately $202 million $202 million drawn on our revolver.

In October of 'twenty, three we made the final payment for the service Max transaction totaling $650 million.

Including $30 million of imputed interest, which will be included in our Q1 'twenty four free cash flow.

We funded this payment with cash on hand, and our revolving credit facility.

The deferred payment was also was included in that on our Q4 balance sheet and also factored into our debt to EBITDA ratio, which was three times at the end of Q4.

Christian Palpatia: O'Connor. For the full year, revenue was 2.097 billion, up 8% or 12% on a constant currency basis. As we've discussed previously, revenues impacted by ASC 606, so we do not believe that revenue or EPS are the best indicators of our underlying business performance, but would rather guide you to ARR and free cash flow as the best metrics to understand our business and cash generation potential. Moving to slide 15, we ended the fourth quarter with cash and cash equivalence of 288 million.

Also in October we drew an additional 85 million euro.

On the revolver related to the pure systems acquisition, we expect to be below three times levered at the end of Q1 'twenty four.

And remained below three times throughout the remainder of fiscal 'twenty four.

We're prioritizing paying down our debt in fiscal 'twenty four we expect to use substantially all of our free cash flow to pay down our debt. This year and end the year with gross debt of approximately $1 7 billion, we paused our share repurchase program and we expect our diluted share count to increase by approximately 1 million shares.

Christian Palpatia: Our gross debt was 2.322 billion with an aggregate interest rate of 5.7%. During Q4, we paid down 43 million of debt, and at the end of Q4, we had 1 billion in high yield notes, a 500 million term loan, and approximately 202 million drawn on our revolver. In October of 23, we made the final payment for the Service Max Transaction, totaling 650 million, including 30 million of imputed interest, which will be included in our Q124 free cash flow.

In fiscal 'twenty four.

Heading into fiscal 'twenty, five we'll revisit the prioritization of debt repay down of debt paydown and share repurchases.

Our long term goal, assuming our debt to EBITDA ratio is below three times remains to return approximately 50% of our free cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic opportunities.

Next turning to slide 16.

Christian Palpatia: We funded this payment with cash on hand and our revolving credit facility. The deferred payment was also included in debt on our Q4 balance sheet, and also factored into our debt to EBITDA ratio, which was three times at the end of Q4. Also in October, we drew an additional 85 million euro on the revolver related to the pure systems acquisition. We expect to be below three times lever at the end of Q124, and remain below three times throughout the remainder of fiscal 24.

Let's take a quick look at how we did against our initial guidance for the year.

Summarizing our fiscal 'twenty three financial results in a challenging market environment.

We executed well in all four quarters and consistently delivered solid top and bottom line growth.

With that let me move on to fiscal 'twenty for guidance.

Turning to slide 18, we provide <unk> on both a constant currency basis and on an as reported basis.

Christian Palpatia: We're prioritizing paying down our debt in fiscal 24. We expect to use substantially all of our free cash flow to pay down our debt this year and end the year with gross debt of approximately 1.7 billion. We've paused our share repurchase program, and we expect our deluded share count to increase by approximately 1 million shares in fiscal 24. Heading into fiscal 25 will revisit the prioritization of debt repay down of debt paid out and share repurchases.

You can see on the slide how FX dynamics have resulted in differences between our constant currency and as reported they are over the past eight quarters.

Clearly as reported are our embeds a lot of FX volatility.

We believe constant currencies, the best way to evaluate the top line performance of our business because it removes FX fluctuations from the analysis positive or negative.

That's why we provide.

Christian Palpatia: Our long-term goal, assuming our debt to EBITDA ratio is below three times, remains to return approximately 50% of our free cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic opportunities. Next, turning to slide 16, let's take a quick look at how we did against our initial guidance for the year. Summarizing our fiscal 23 financial results. In a challenging market environment, we executed well in all four quarters and consistently delivered solid top and bottom line growth.

Our guidance on a constant currency basis for fiscal 'twenty three.

We provided constant currency our guidance for the year.

And <unk>.

Constant currency results for all four quarters, using FX rates as of September 30th 2022 for.

For comparative purposes, we also provided constant currency a our history at these FX rates.

Next on Slide 19, we're taking the same approach for fiscal 'twenty four.

Our as reported Q4 'twenty three <unk> was 1.79 billion based on actual FX rates as of September 32023.

Christian Palpatia: With that, let me move on to fiscal 24 guidance. Turning to slide 18, we provide ARR on both a constant currency basis and on an as reported basis. You can see on the slide how FX dynamics have resulted in differences between our constant currency ARR and as reported ARR over the past eight quarters. Clearly, as reported ARR embeds a lot of FX volatility. We believe constant currency is the best way to evaluate the top-line performance of our business because it removes FX fluctuations from the analysis, positive or negative.

That rate is our baseline for our fiscal 'twenty for constant currency guidance.

For comparative purposes, we have recast our constant currency our history at these rates, which you can see on the upper half of this slide and is also in the data tables posted on our website.

With that I'll take you through our guidance on slide 20.

For fiscal 'twenty, four we expect constant currency <unk> to grow from 1.979 billion to $2. One nine to 222 to 2.25 billion, which corresponds to growth of 11% to 14%.

Christian Palpatia: That's why we provide ARR guidance on a constant currency basis for fiscal 23. We provided constant currency ARR guidance for the year and constant currency ARR results for all four quarters using FX rates as of September 30th, 2022. For comparative purposes, we also provided constant currency ARR history at these FX rates. Next, on slide 19, we're taking the same approach for fiscal 24. Our as reported, Q423 ARR was 1.79 billion based on actual FX rates as of September 30th, 2023.

Our Q1 constant currency guidance range of 1.9, 95 billion to 2.01 billion corresponds to year over year growth of 22% to 23%.

Note that we closed the service Max acquisition right at the start of Q2 'twenty. Three so Q1 will be the last quarter, we exclude service Max from our organic growth rate.

On cash flows we're guiding for free cash flow of approximately $725 million in fiscal 'twenty four.

Note that our cash flow guidance is not on a constant currency basis. So FX fluctuations can have an impact in either direction.

Christian Palpatia: That rate is our baseline for our fiscal 24 constant currency ARR guidance. For comparative purposes, we've recapped our constant currency ARR history at these rates, which you can see on the upper half of this slide and is also in the data tables posted on our website. With that, I'll take you through our guidance on slide 20. For fiscal 24, we expect constant currency ARR to grow from 1.979 billion to 2.19 to 2.22 to 2.25 billion, which corresponds to growth of 11 to 14%.

For fiscal 'twenty for our guidance for operating cash flow is $745 million, we're assuming capex of approximately $20 million.

It's worth, noting how consistent and solid our free cash flow results have been since completing our transition to a subscription business model in.

In addition, we maintained consistent billing practices and we've optimized our a R. A P and budgeting processes over the past few years.

The predictability of our cash generation is tremendously helpful. As we manage our business and invest for growth.

For example, we're able to maintain core long term investments even in a turbulent macroeconomic environment, which is great for customers and employees alike.

Christian Palpatia: Our Q1 constant currency guidance range of 1.995 billion to 2.01 billion corresponds to year over year growth of 22 to 23%. Note that we closed the service max acquisition right at the start of Q223. So Q1 will be the last quarter. We exclude service max from our organic growth rate. On cash flows, we're guiding for free cash flow of approximately 725 million in fiscal 24. Note that our cash flow guidance is not on a constant currency basis, so FX fluctuations can have an impact in either direction.

Beyond our core investments, we adjust our shorter term or more discretionary investments accordingly, given our business performance and outlook.

The net result is solid and consistent free cash flow growth.

In fiscal 'twenty, four we expect approximately 55% or more of our free cash flow to be generated in the first half of the year.

Which is less than we've seen over the past three years.

This is primarily because in Q1 of 'twenty four.

Our free cash flow of $180 million includes a $30 million imputed interest payment related to the deferred payment on our acquisition of servicemaster.

Christian Palpatia: For fiscal 24, our guidance for operating cash flow is 745 million, we're assuming capex of approximately 20 million. It's worth noting how consistent and solid our free cash flow results have been since completing our transition to a subscription business model. In addition, we maintain consistent billing practices and we've optimized our AR, AP, and budgeting processes over the past few years. The predictability of our cash generation is tremendously helpful as we manage our business and invest for growth.

Finally on this slide we're continuing to provide revenue and EPS guidance to help you with your models.

But as a reminder, ASC 606 makes revenue difficult to predict in the short term for on premise subscription companies.

More importantly revenue does not influence a R R or cash generation as we typically bill customers annually upfront regardless of contract term lengths.

Also since revenue is impacted.

By ASC. So ASC 606, it's important to remember that margins and earnings per share also impacted so we do not view these as meaningful indicators of the performance of our business.

Christian Palpatia: For example, we're able to maintain core long-term investments, even in a turbulent macroeconomic environment which is great for customers and employees alike. Beyond our core investments, we adjust our shorter term or more discretionary investments accordingly given our business performance and outlook. The net result is solid and consistent, recast flow growth. In fiscal 24, we expect approximately 55% or more of our free cash flow to be generated in the first half of the year, which is less than we've seen over the past three years.

Turning to slide 21.

Here you can see how we're investing for growth, while delivering solid free cash flow.

On the slide in Blue you can see our absolute level of R&D spending which has increased steadily over the years, but more importantly, you can see the slope of the Blue line has inflected in recent years, along with our transition to a subscription model.

As our free cash flows expanded this has enabled us to reinvest greater amounts of year after year into R&D to drive future growth. Despite the turbulent macro environment we've been in.

Christian Palpatia: This is primarily because in Q1 of 24, our free cash flow of 180 million includes a 30 million dollar imputed interest payment related to the deferred payment on our acquisition of service max. Finally, on this slide, we're continuing to provide revenue and EPS guidance to help you with your models. But as a reminder, ASC 606 makes revenue difficult to predict in the short term for on-premise subscription companies. More importantly, revenue does not influence ARR or cash generation as we typically build customers annually upfront regardless of contract term lengths.

Moving.

Onto slide 22, here's an illustrative constant currency <unk> model for fiscal 'twenty four you can see our results over the past three years and the column on the right illustrates what's needed to get to the midpoint of our constant currency guidance for fiscal 'twenty four.

The illustrative model indicates that to hit the 2.22 billion midpoint of our guidance range, we need to add 241 million of net <unk>. This year.

Christian Palpatia: Also, since revenue is impacted by ASC 606, it's important to remember that margins and earnings per share are also impacted so we do not view these as meaningful indicators of the performance of our business. Turning to slide 21, here you can see how we're investing for growth well-delivering solid free cash flow. On the slide in blue, you can see our absolute level of R&D spending, which has increased steadily over the years, but more importantly, you can see the slope of the blue line has inflected in recent years along with our transition to a subscription model.

Well this is higher than the amounts we added in fiscal 'twenty three and 'twenty. Two there are some important drivers to consider first of all as we discussed earlier, we have more deferred a R. R.

Contractually committed to start in fiscal 'twenty four in fact that amount is approximately $20 million higher at the start of fiscal 'twenty four compared to the start of fiscal 'twenty three.

Secondly.

We expect <unk> to be a tailwind for our growth in fiscal 'twenty four.

Well, we currently expect pure systems to have de Minimis impact on our results in fiscal 'twenty four given its overall size. We do expect that peer systems will help drive our code beamer momentum.

Christian Palpatia: As our free cash flow is expanded, this has enabled us to reinvest greater amounts year after year into R&D to drive future growth despite the turbulent macro environment we've been in. Moving on to slide 22, here's an illustrative constant currency ARR model for fiscal 24. You can see our results over the past three years and the column on the right illustrates what's needed to get to the midpoint of our constant currency ARR guidance for fiscal 24.

Also fiscal 'twenty four will be our first full year of having service Max under our roof.

The broader PTC sales force has been equipped to sell service Max and they also have photos now.

All things considered we believe we've set our fiscal 'twenty for constant currency our guidance range prudently.

Next on slide 23, Here's a similar illustrative model for Q1.

Christian Palpatia: The illustrative model indicates that to hit the 2.22 billion midpoint of our guidance range, we need to add 241 million of net ARR this year. Well, this is higher than the amounts we added in fiscal 23 and 22. There are some important drivers to consider. First of all, as we discussed earlier, we have more deferred ARR contractually committed to start in fiscal 24. In fact, that amount is approximately 20 million higher at the start of fiscal 24 compared to the start of fiscal 23.

You can see our results over the past eight quarters in the column on the right illustrates what's needed to get to the midpoint of our constant currency guidance.

Because a R. R <unk> trends tend to see some seasonality. The most relevant comparison is the sequential growth in Q1 'twenty three in Q1 'twenty two.

The illustrative model indicates that to hit the midpoint of our Q1 guidance range, we need to add 24 million of net or on a sequential basis.

We believe we've set our Q1 constant currency guidance range prudently it.

Christian Palpatia: Secondly, we expect code beamer to be a tailwind for ARR growth in fiscal 24. Well, we currently expect pure systems to have diminimous impact on our ARR results in fiscal 24 given it's overall size. We do expect that pure systems will help drive our code beamer moment. Also, fiscal 24 will be our first full year of having service max under our roof. The broader PTC sales force has been equipped to sell service max, and they also have quotas now.

Also worth mentioning that the incremental $20 million of deferred a R. R. We have starting in fiscal 'twenty four is skewed to the second half of the year.

Moving on to slide 24, I know that most of you.

Model free cash flow using the indirect method, which uses the P&L and balance sheet as a starting point.

Given the complexities related to ASC 606, there are inherent challenges in using the indirect method to forecast free cash flow for P. T C.

Christian Palpatia: All things considered, we believe we've set our fiscal 24 constant currency, ARR guidance range prudently. Next, on slide 23, here's a similar illustrative model for Q1. You can see our results over the past eight quarters and the column on the right illustrates what's needed to get to the midpoint of our constant currency ARR guidance. Because ARR trends tend to see some seasonality, the most relevant comparison is the sequential growth in Q1.23 and Q1.22.

The model on this slide is based on what we use internally.

I know that looking at it this way maybe unfamiliar to some of you. So please feel free to reach out.

If we can help.

Starting at the top for fiscal 'twenty for <unk>, we're using the midpoint of our constant currency.

Our guidance range next our perpetual revenue is primarily related to our <unk> business, which is moving to subscription over time.

And the primary reason our professional services is modeled to decline in fiscal 'twenty four is because a portion of our professional services revenue is transitioning to DXP overtime.

Christian Palpatia: The illustrative model indicates that to hit the midpoint of our Q1 guidance range, we need to add 24 million of net ARR on a sequential basis. We believe we've set our Q1 constant currency guidance range prudently. It's also worth mentioning that the incremental 20 million of deferred ARR we have starting in fiscal 24 is skewed to the second half of the year. Moving on to slide 24, I know that most of you model free cash flow using the indirect method, which uses the PNL and balance sheet as a starting point.

These three line items.

Get us to our expected cash generation for the year.

Moving down the model you can see that even though we continue to reinvest in the business. We also see room to expand our operating efficiency due to our sticky products and subscription business model combined with operational discipline.

Continuing to move down the model, we provide guidance assumptions for stock comp Capex interest payments you can find these on slide 29 of the earnings deck and also pages three and four of the press release.

Christian Palpatia: Given the complexities related to ASC 606, their inherent challenges in using the indirect method to forecast free cash flow for PTC. The model on this slide is based on what we use internally. I know that looking at it this way may be unfamiliar to some of you, so please feel free to reach out if we can help. Starting at the top for fiscal 24 ARR, we're using the midpoint of our constant currency ARR guidance range.

Specifically interest payments are expected to be approximately $135 million.

In fiscal 'twenty, four driven by an increase in debt higher interest rates and the timing of our interest payments.

Next cash taxes are modeled higher in fiscal 'twenty, four reflecting higher taxable income as well as the impact of section 174.

And finally, let's take a look at the other category in.

In fiscal 'twenty three to 72 million is related to FX movements pre acquisition servicemaster collections and working capital.

Christian Palpatia: Next, our perpetual revenue is primarily related to our cap wear business, which is moving to subscription over time. The primary reason our professional services is modeled to decline in fiscal 24 is because a portion of our professional services revenue is transitioning to DXP over time. These three line items get us to our expected cash generation for the year. Moving down the model, you can see that even while we continue to reinvest in the business, we also see room to expand our operating efficiency due to our sticky products and subscription business model combined with operational discipline.

For fiscal 'twenty for the main driver of the $19 million being model is working capital to support continued growth.

All of this sums up to <unk>.

Expected free cash flow of approximately $725 million.

If the demand environment is such that we're trending to the lower end of our guidance range will be more judicious judicious in incrementals investment decisions.

If the demand environment is such that we're trending to the higher end of the IRR guidance range, we would feel more comfortable increasing investments we have a robust budgeting process internally and that helps us not only prioritize run rate spend but also prioritizes additional investments we might want to make.

Christian Palpatia: Continuing to move down the model, we provide guidance assumptions for stock comp, CAPEX, interest payments. You can find these on slide 29 of the earnings deck and also pages 3 and 4 of the press release. Specifically, interest payments are expected to be approximately 135 million in fiscal 24 driven by an increase in debt, higher interest rates, and the timing of our interest payments. Next, cash taxes are modeled higher in fiscal 24, reflecting higher taxable income as well as the impact of section 174.

For example, even in a muted demand environment, we may want to increase R&D investments, but it wouldn't necessarily make sense to increase sales and marketing spending.

So turning to slide 25 for.

For fiscal 'twenty, five we're reiterating our previous targets and for fiscal 'twenty six we're providing targets that extend the trajectory that we're on we.

Christian Palpatia: And finally, let's take a look at the other category. In fiscal 23, the 72 million is related to FX movements, free acquisition, service max collections, and working capital. For fiscal 24, the main driver of the 19 million being modeled is working capital support continued growth. All this sums up to expected free cash flow approximately 725 million. If the demand environment is such that we're trending to the lower end of the ARR guidance range will be more judicious judicious in incremental investment decisions.

<unk> these targets to help you understand the potential of our business.

But I also want to remind you that the macroeconomic environment FX rates and interest rates have been volatile in recent years and could positively or negatively impact our midterm targets.

It's also important to point out that global tax law changes.

Are expected to have a significant impact on our midterm free cash flow, which we factored into our mid term targets.

Yeah.

Next on slide 26, I'd like to explain the progression of our free cash flow looking back three years and looking forward three years.

Christian Palpatia: If the demand environment is such that we're trending the higher end of the ARR guidance range, we would feel more comfortable increasing investments. We have a robust budgeting process internally, and that helps us not only prioritize run rate spend, but also prioritize as additional investments we might want to make. For example, even in a muted demand environment, we may want to increase R and D investments, but it wouldn't necessarily make sense to increase sales and marketing spending.

Over the course of fiscal 'twenty, one to fiscal 'twenty, three we delivered a 40% three.

Three year free cash flow CAGR.

Over that time period, we had solid <unk> growth and as expected our non-GAAP opex growth was roughly 50% of our <unk> growth it was actually 46%.

Looking forward, we're targeting FY 'twenty six free cash flow of approximately $1 billion, which reflects a three year free cash flow CAGR of approximately 20%.

Christian Palpatia: So turning the slide 25 for fiscal 25, we're reiterating our previous targets and for fiscal 26, we're providing targets that extend the trajectory that we're on. We provide these targets to help you understand the potential of our business, but I also want to remind you that the macroeconomic environment, FX rates and interest rates have been volatile in recent years and could positively or negatively impact our midterm targets. It's also important to point out that global tax law changes are expected to have a significant impact on our midterm free cash flow, which we've factored into our midterm targets.

This factors in a continuation of operational discipline.

It also factors in hefty step up in cash taxes, particularly in fiscal 'twenty, five and 26 due to global tax law changes in the depletion of our deferred tax assets.

We're focused on paying down our debt and while interest payments will increase in fiscal 'twenty four we expect them to decrease in both fiscal 'twenty five and 'twenty six.

In summary.

Turning to slide 27.

First we have a strong portfolio and strategy, we have a solid position in CAD with a long term opportunity to disrupt this market with on shape and Korea plus.

Christian Palpatia: Next on slide 26, I'd like to explain the progression of our free cash flow looking back three years and looking forward three years. Over the course of fiscal 21 to fiscal 23, we delivered a 40% three year free cash flow cager over that time period we had solid ARR growth and as expected our non gap op X growth was roughly 50% of our ARR growth, it was actually 46%. Looking forward, we're targeting FY 26 free cash flow of approximately one billion, which reflects a three year free cash flow cager of approximately 20%.

This year, we've expanded our category leadership.

In <unk>, which has become a technology backbone for digital transformation at industrial companies.

The acquisitions of cone beam are in pure systems significantly strengthens our position, which is becoming increasingly important to our customers as their products add more software and complexity to their products.

And the addition of service Max further extends what was already a unique portfolio of interconnected digital thread capabilities across.

The full product lifecycle.

Christian Palpatia: This factors in a continuous system of operational discipline, it also factors in a healthy step up in cash taxes, particularly in fiscal 25 and 26 due to global tax law changes and the depletion of our deferred tax assets. We're focused on paying down our debt and while interest payments will increase in fiscal 24, we expect them to decrease in both fiscal 25 and 26. In summary, turning to slide 27. First, we have a strong portfolio and stress.

Second our strong execution.

With organic growth at double digit levels already we're in the early days of a major on premise to SaaS transformation driven by the evolving needs of our customers.

But it's an oversimplification to focus only on SaaS as the one and only major driver of growth for PTC.

The delivery model is important but it all starts with our robust software portfolio that meets the needs of industrial product companies.

We continue to benefit from cumulative accumulative layers of PTC specific growth drivers.

Christian Palpatia: Strategy. We have a solid position in CAD with a long-term opportunity to disrupt this market with on-shape and Creo Plus. This year we've expanded our category leadership in PLM, which has become a technology backbone for digital transformation at industrial companies. The acquisitions of code beamer and pure systems significantly strengthens our ALM position, which is becoming increasingly important to our customers as their products add more software and complexity to their products. And the addition of service max further extends what was already a unique portfolio of interconnected digital thread capabilities across the full product lifecycle.

Including driving customer expansions through cross selling our differentiated portfolio and pls expanding beyond the engineering department and becoming an enterprise wide system of record.

Fiscal 'twenty four is forecasted to be our eighth consecutive year of double digit constant currency growth.

Third.

We have a well earned reputation for driving margin expansion that goes back more than a decade.

We've been demonstrating that we're judicious with our investments being mindful of both long term opportunities and near term macro uncertainty.

From a cost and operational perspective, we're lean and continuous improvement mindset is part of Ptc's culture.

Christian Palpatia: Second, our strong execution. With organic growth at double digit levels already, we're in the early days of a major on-premise to SaaS transformation driven by the evolving needs of our customers. But it's an oversimplification to focus only on SaaS as the one and only major driver of growth for PTC. The delivery model is important, but it all starts with our robust software portfolio that meets the needs of industrial product companies. We continue to benefit from cumulative layers of PTC-specific growth drivers, including driving customer expansions through cross-selling our differentiated portfolio and PLM expanding beyond the engineering department and becoming an enterprise-wide system of record.

Fourth with organic growth in the low teens juxtaposed <unk> that are generally in the mid Forty's I Trust you would agree we're actively demonstrating that our business model is very resilient.

We're targeting solid top line growth and bottom line free cash flow growth.

And finally were led by a team that has deep deep expertise and a proven ability to drive growth and margin expansion.

And while I personally will Miss Jim.

Im also excited to have Neil joined the team and help continue to drive and evolve PTC for sure the environment around US we will continue to change and we will continue to adapt accordingly, we'll still pushing the envelope of what we can do for our customers.

With so many positive trends going our way we continue to believe PTC as a tremendous opportunity to continue to create value for our customers and shareholders.

Christian Palpatia: 524 is forecasted to be our 8th consecutive year of double digit constant currency ARR growth. Third, we have a well-earned reputation for driving margin expansions that goes back more than a decade. We've been demonstrating that we're judicious with our investments, being mindful of both long-term opportunities and near-term macro uncertainty. From a cost and operational perspective, we're lean and a continuous improvement mindset is part of PTC's culture. Fourth, with organic ARR growth in the low teens juxtaposed PMIs that are generally in the mid-40s, I trust you would agree we're actively demonstrating that our business model is very resilient.

With that I'll pass it back to Neil for a couple of closing comments.

Thank you everyone for joining us and for your for the time today.

Actually we're going to go to.

We're going to move to Q&A now and then I'll give some closing remarks.

Alright.

Yeah.

Wonderful. Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

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

Your first question comes from the line of.

Christian Palpatia: We're targeting solid-pop line ARR growth and bottom line free cash flow growth. And finally, we're led by a team that has deep expertise and a proven ability to drive growth and margin expansion. And while I personally will miss Jim, I'm also excited to have Neil join the team and help continue to drive and evolve PTC. For sure, the environment around us will continue to change and we will continue to adapt accordingly, while still pushing the envelope of what we can do for our customers.

Daniel Jester with BMO capital markets. Please go ahead.

Hi, This is Kyle <unk> on for Dan Jester, Thanks for taking my question.

In the in the prepared remarks, you hint to that better than expected churn. This year, which is great to hear obviously could you dig a bit further into this maybe what is driving the strength.

And how you guys are thinking about the retention in fiscal year 2024.

Yes, sure it's Christian.

So we've been on this journey really for a number of years now trying to drive programmatic change.

Christian Palpatia: With so many positive trends going our way, we continue to believe PTC has a tremendous opportunity to continue to create value for our customers and shareholders. With that, I'll pass it back to Neil for a couple of closing costs. Thank you, everyone, for joining us and for the time today. We're going to move to Q&A now, and then I'll give some closing remarks. Wonderful. Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Please limit yourself to one question only. If you have additional questions, please return to the Q&A. Thank you.

Uh huh.

With the churn.

And frankly, it's a few different things.

One.

As you know we've been driving for longer term lengths, which is which has been helping.

Two we've had more.

Commercial discipline.

As you know, particularly around.

Our price increase realization.

Three.

You know there has been a.

Uh huh.

Both market and product maturity.

Have been improving and some of our.

Segments that have a higher churn such as Iot.

Christian Palpatia: Your first question comes from the line of Daniel Chester with BMO Capital Markets. Please go ahead. Hey, this is Kyle Aberasterion for Dan Jester. Thanks for taking my question. In the prepared remarks, you hinted at better than expected churn this year, which is great to hear, obviously. Could you dig a bit further into this? Maybe what is driving the strength? And how you guys are thinking about the retention into fiscal year 2024?

So those are some of the levers that we've been pulling on.

I think we're in a great spot as it stands.

Candidly I'd say I think there's even more room to continue to approve improve from here, albeit it will be at a more muted pace than its been over the past three years or so.

Great.

Wonderful thank you.

Next question comes from Ken Wong with Oppenheimer <unk> Company. Please go ahead.

Ken Wong: Yeah, sure. It's Christian. So, you know, we've been on this journey really for a number of years now, trying to drive programmatic change to help with the churn. And frankly, it's a few different things. One is, you know, we've been driving for longer term lengths, which is, which has been helping. Two, we've had more commercial discipline, particularly around price increase realization. Three, you know, there's been a, both market and product maturity have been improving in some of our segments that have higher churn, such as IoT and an AR.

Ken Wong: So, you know, those, those are, you know, some of the leverage that we've been pulling on. You know, I think we're in a great spot as it stands. You know, candidly, I'd say I think there's even more room to continue to improve, improve from here, albeit it will be at a more muted pace than it's been over the past three years or so. Great. Wonderful. Thank you.

Great question as far for Neil.

Tony I think I think in the past you had mentioned that you were very involved in the financial planning and obviously blessing the targets out to fiscal 'twenty five perhaps there was some skepticism there, but with fiscal 'twenty six introduced I guess, it's fair to assume that you definitely put your stamp on that particular trajectory.

Specific nuances of refinements to the strategic roadmap that that might have gone into that fiscal 'twenty six number that you can perhaps share with us.

Yeah, Hey, Hey, Ken a.

A few things that Ive got more to share obviously as the CEO transition comes to an end here in February and we're playing on something at Investor day for a more comprehensive update here, but couple of themes that gives me more confidence since the last time, we spoke around the business and again 90 days more of the transition but Ah.

Around the <unk> expansion capabilities is actually something that is a very interesting and some of the trends that we've seen.

This past year that I believe will continue and the focus of the company on that is is giving me confidence around supporting the.

The guidance that we put out there for multiple years that you indicated as well is this a L M strength.

Neil Barua: Next question comes from Ken Wong with Oppenheimer and Company. Please go ahead. Great. There's questions for Neil. So, Neil, I think in the past, you had mentioned that you were very involved in the financial planning and obviously blessed the target of the fiscal 25. You know, perhaps there was some skepticism there, but with fiscal 26 introduced, I guess it's fair to assume that you definitely put your stamp on that particular trajectory.

I think that is something that we've showed momentum and we're building more momentum given some of the things that we're seeing in the marketplace with that product and solutions up now.

<unk> by peer as well.

And lastly on the SLM piece and the cross sell opportunities not only within SLM, but connecting back to P. L. M. We're advancing those.

Beyond what we were doing 90 days ago and now given the fact that service Max's in the quotas are the sellers, we've created enablement I see also that.

Jason Celino: Any specific nuances or refinements to the strategic roadmap that might have gone into that fiscal 26 number that you can perhaps share with us? Yeah, hey, Ken, a few things and I've got more to share obviously as the CEO transition comes to an end here in February and we're playing on something and investor for more comprehensive update here, but couple of themes that give me more confidence since the last time we spoke around the business and again 90 days more of the transition, but around the PLM expansion capabilities is actually something that is very interesting and some of the trends that we've seen this past year that I believe will continue and the focus of the company on that is giving me confidence around supporting the guidance that we put out there for the multiple years that you indicated as well as this ALM strength.

That area to be an area that we'll focus in on to keep building on the sustainable growth levers.

We've been showing but continuing to show that trend into 'twenty five 'twenty six.

Got it okay, great. Thank you for that color and good luck with filling those big shoes.

<unk> by the way [laughter].

Yeah.

Alright, well move to our next question Jason <unk>.

Keybanc. Please go ahead.

Great. Thanks for taking my question.

Kind of a follow up on the Cosby interim.

Right.

Momentum that we're seeing.

And then with the volatile deal.

I don't know if any of us really knew what PTC was nearing an L. M two or three years ago. So when I think about the clubs being our pipeline in Atlanta right now how much of this is maybe from existing customers looking to upgrade existing legacy <unk> product.

Jason Celino: I think that is something that, you know, we've shown momentum and we're building more momentum given some of the things that we're seeing in the marketplace with that product and solutions that now augmented by pure as well. And lastly on the SLM piece and the cross cell opportunities not only within SLM but connecting back to PLM were advancing those beyond what we were doing 90 days ago and now given the fact that service max is in the quotas of the sellers we've created enable men.

Universities wins in displacements of other tools.

Versus customers, who may not even had an a O N E product before.

If that makes sense.

Yeah, Let me let me take the front end of this thanks for the question.

We indicated in our press release, a large strategic relationship with Volkswagen across their entire enterprise, where we are deploying code beamer.

Jason Celino: And I see also that area to be an area that we'll focus in on to keep building on the sustainable growth lovers that we've been showing but continue to show that trend into 25 and 26. Got it. Okay, great. Thank you for the color and good luck with the fill in those big shoes of Jim. Size 9, by the way.

Two to their enterprise users for all the use cases that we talked about one of the themes that we're seeing is this is actually a tip of the spear and an enabler for getting into new logos, particularly in the automotive.

Segment.

What we're seeing is that a displacement of other tools in the marketplace. Then now code beamer with its differentiated capabilities with also the element of the tie back to P. L. M. Within PTC is actually creating the.

Jason Celino: All right, we'll move to our next question. It's Jason Celino with Keybank. Please go ahead. Great. Thanks for taking my question. You know, kind of follow up on the code beamer, you know, strike. Yeah, just momentum that we're seeing. And then with the Volvo deal, you know, I don't know if any of us really knew what PCC was doing in ALM two or three years ago. So when I think about the code being a pipeline and the ALM strength, how much of this is maybe from existing customers looking up great existing, you know, legacy, ALM products. You know, versus wins and displacements of other tools, you know, versus customers who may not even had an ALM product for. If that makes sense.

The momentum that we spoke about that we'll continue to push on over the course of this year as well.

Maybe I can add.

Just if I could in.

In the fourth quarter, we actually did a transactions with five auto Oems the big one with Volkswagen and then smaller in some cases foot in the door.

Type transactions with other global Oems.

At least three of those we have no meaningful CAD <unk> ALM business with prior to this could be my win so I mean, certainly we can upsell from the ASM position, we had in sometimes on a BLM position, but what's really exciting is that we're knocking down big named new logos that we have no previous relationship with.

James Heppelmann: Yeah, let me, let me take the front end of this. Thanks for the question. You know, we, we indicated in a press release. You know, large strategic relationship with Volkswagen across the entire enterprise where we are deploying code beamer to their enterprise users for all the use cases that we talked about. One of the themes that we're seeing is this is actually a tip of the spear and an able or forgetting into new logos, particularly in the automotive segment.

Yeah.

Great. Thanks, Tim Thanks Neal.

Alright, let's take our next question comes from second Korea with Barclays Capital. Please go ahead.

Okay, Great Hey, guys. Thanks for thanks for taking my questions here and nice nice to see the quarter in the garden.

A new long term framework.

James Heppelmann: What we're seeing is that a displacement of other tools in the marketplace that now code beamer with its differentiated capabilities with also the element of the tie back to PLM within PDC is actually creating the momentum that we spoke about that will continue to push on over the course of this year as well. Maybe I can add you know, just, just if I could in the fourth quarter, we actually did transactions with five auto OEMs, the big one with Volkswagen and then smaller in some cases put in the door, the type transactions with other global OEMs.

Neil maybe maybe for you a little bit of a higher level question I know that we've said that it's an oversimplification to focus on SaaS.

For for PTC, but clearly you come from a SaaS background with at least service Max if not if not your time before that as well. So maybe the question is as you met customers inter quarter, what are they saying to you about taking pls and counts of cloud.

James Heppelmann: And at least three of those we have no meaningful CAD PLM or ALM business with prior to this code beamer win. So, I mean, certainly we can upsell from the the ALM position we had and sometimes from the PLM position, but what's really exciting is that we're knocking down big name new logos that we have no, you know, previous relationship with.

Yeah, Great question. So first of all there is continued interest in our SaaS offering and it is an important.

Layer of the cake that we mentioned in terms of the sustainable growth drivers as a reminder.

This we expect an S shaped adoption curve. We've also told you and I agree with this as a decade plus long journey. We continue on this journey into 'twenty four and in regards to feedback from customers were seeing opportunities by which the roadmap the ability for windshield.

James Heppelmann: Great, thank Jim, thank Neil.

Korea, plus for not only new logos by the way, but also conversions continues to be interesting that being said one thing is important here in my upfront here that I mentioned.

Saket Kalia: All right, it looks like our next question comes from Sackett, Kalea with Barclays Capital, please go ahead. Okay, great, hey guys, thanks for, thanks for taking my questions here and nice, nice to see the quarter and the God and the new long term framework. Neil, maybe, maybe for you a little bit of a higher level question, I know that we've said that it's an over simplification to focus on on SaaS for, for, for PTC, but, but clearly you come from a SaaS background with, with at least service max, if not, if not your time before that as well.

The overall growth drivers of our a R. R has very little right now and quite frankly into 'twenty four to do with SaaS.

That being said, we are making sure the SaaS opportunities we've already secured the pipeline that we're working on we're working hand in hand with those customers to ensure we're optimizing the conversion experience of those customers again this will be multi year decade, plus long journey across the base of our <unk>.

Saket Kalia: So, maybe the question is, as you met customers in the quarter, what do they think to you about taking PLM and CAD to the cloud? Yeah, great question. So, first off, there is continued interest in our SaaS offering, and it is an important layer of the cake that we mentioned in terms of the sustainable growth drivers. As a reminder, we expect an ass-shaped adoption curve. We've also told you, and I agree with, this is a decade plus long journey.

Existing customers plus those that were fire, new but it is a key part of our focus.

However, there are many other layers of the cake that are working extremely well right now that I'm gonna help push the team even further to accelerate.

Got it got it.

Makes a lot of sense.

Kristian, maybe for my follow up for you and apologies I joined the call a little late.

Great to see the the continued double digit growth in AUR can continue into next year and beyond that maybe maybe the question is.

Saket Kalia: We continue on this journey into 24. And in regards to feedback from customers, we're seeing opportunities by which the roadmap, the ability for windshield plus, Creole plus, for not only new logos, by the way, but also conversions, continues to be interesting. That being said, one thing is important here in my upfront here that I mentioned, the overall growth drivers of our ARR has very little right now and quite frankly into 24 to do with SaaS.

Can you just talk a little bit about <unk>.

Level of visibility here I know, we've talked about ramp deals in the past I think you mentioned something on deferred AOR, maybe go one level deeper into sort of the level of visibility or comfort that you have as you look out to 'twenty four which.

This is clearly another sort of.

Uncertain year of macro.

Yeah, I mean again.

I think we have a pretty good level of visibility.

A lot of our contracts are multiyear contracts. So you know you don't they're not actually even coming up for renewal in in fiscal 'twenty. Four you have some portion that's coming up for renewal, but again.

Saket Kalia: That being said, we are making sure the SaaS opportunities we've already secured, the pipeline that we're working on, we're working hand in hand with those customers to ensure we're optimizing the conversion experience of those customers. Again, this will be multi-year decade plus long journey across the base of our existing customers, plus those that were fire new, but is the key part of our focus. However, there are many other layers of the cake that are working extremely well right now that I'm going to help push the team even further to accelerate. Got it. That makes a lot of sense.

Sure.

Retention rates are at this point are already quite high.

And then also as you point out.

We do have differed.

We've had obviously deferred IRR for many years.

But you know we have a we have that which also provides more incremental incremental visibility.

Christian Palpatia: Christian, maybe from my follow-up for you and apologies, I joined the call a little late. You know, great to see the continued double digit growth in ARR and continuing to next year and beyond that. Maybe the question is, can you just talk a little bit about your level of visibility here? I know we've talked about ramp deals in the past. I think you mentioned something on deferred ARR. Maybe going one level deeper into sort of the level of visibility or comfort that you have as you look out to 24, which is clearly another sort of uncertain year of macro.

Very helpful. Thanks, guys.

Our next question comes from Andrew <unk> with <unk>.

Please go ahead.

Good evening.

Christian Palpatia: Yeah, I mean, again, I think we have a pretty good level of visibility, you know, a lot of our contracts are multi-year contracts. So, you know, you don't, they're not actually even coming up for renewal in fiscal 24. You have some portion that's coming up for renewal. But again, our retention rates at this point are already quite high. And then also, as you point out, we do have deferred ARR. We've had obviously deferred ARR for many years. But, you know, we have we have that which also provides more incremental incremental visibility. Very helpful. Thanks, guys.

Jim.

Okay.

Hi, just a question on the Pls and specifically <unk>.

<unk> you guys have been.

Very successful was growing the business and I guess the question I have as your customers.

Digitize their operation there as you know this build out of the studios so value chain.

What's the opportunity to monetize beyond.

Sort of existing users right as more people touch digital thread.

What are the revenue opportunities are there are sort of opportunities to sort of charge people for different services. If you could expand on that thank you.

Yeah, Let me take the front end and maybe.

Christian and Jim could support here.

As I mentioned one of the drivers we've seen over many years right now is around windshields adoption within the within our customers and what we've also seen is that expanding not only within engineering, but as you mentioned, it's now going to other groups that is tied closer to engineering.

Like supply chain like quality as an example, and as Christian said, we're seeing this migration of windchill, becoming more of an enterprise wide system of record.

Andrew Obin: All right. Our next question comes from Andrew Oben with B of A. Please go ahead.

Neil Barua: Good evening, Neil Jim. Hi, just a question on PLM and specifically Winchill. You guys have been very successful with growing the business. And I guess the question I have as your customers digitize the operation. There is, you know, this build out of this digital value chain. What's the opportunity to monetize beyond sort of existing users? Right as more people touch the digital thread? What are the revenue opportunities? Are there sort of opportunities to sort of charge people for different services?

That will take some time, but we are seeing the trends moving towards that particularly as we think about model base and the digital thread that is pushing on this lever.

To be clear some of the economic points that you're asking about revenue potential outside of the already strong sustainable growth that we've been showing in wind chill. We're working on more of a metrics driven approach to that within ourselves internally to think about how do we sustain that over the periods over the next <unk>.

Medium and long term that will be an area that will explain more in detail as we get into the investor day hopefully in early spring.

Jim do you want to add.

Maybe I would add that our rule of thumb has long been that.

Neil Barua: If you could expand on that. Thank you. Yeah, let me take the front end and maybe Kate Christian and Jim could support here. As I mentioned, what are the drivers we've seen over many years right now is around Winchill's adoption within our customers. And what we've also seen is that expanding not only within engineering, but as you mentioned, it's now going to other groups that is tied closer to engineering, like supply chain.

When a customer.

First adoption engineering excuse me and then expands to a broader enterprise deployment. There's generally 10 to 15 times more users across the broader enterprise than there are in engineering and so as companies digitize, they're basically saying we need to have everybody in the enterprise logging into the system and getting <unk>.

Neil Barua: Like quality as an example. And as Christian said, we're seeing this migration of Winchill becoming more of an enterprise wide system of record. That will take some time, but we are seeing the trends moving towards that, particularly as we think about model base and the digital thread. That is pushing on this lever. To be clear, some of the economic points that you're asking about revenue potential outside of the already strong sustainable growth that we've been showing in Winchill, we're working on more of a metrics driven approach to that within ourselves internally to think about how do we sustain that over the periods over the next medium and long term.

Real time data as opposed to working with our data.

Data that's been exported out of the system and passed on and maybe on a date may be wrong et cetera.

You know typically drawings and PDF files, and so forth. So I think that there's a real opportunity and I think neil's offering to quantify it a little bit more discreetly at the Investor day.

Great Jim Thank you and I look forward to working with you.

Thanks.

Alright. Our next question comes from Steve Tusa with Jpmorgan. Please go ahead.

Hey, guys good evening.

Hey, Steve.

Jim Congrats again.

Ron for sure.

Can you guys. I think you guys said you would update us kind of.

Really on the SaaS trajectory I think you've put out an illustrative model or at least like some sense of where you would be as a percentage of IRR.

James Heppelmann: That will be an area that will explain more in detail as we get into the investor day, hopefully in early spring. Jim, Katie, do you want to add? Maybe I would add that our rule of thumb has long been that when a customer first adopts an engineering, excuse me, and then expands to a broader enterprise deployment. There's generally 10 to 15 times more users across the broader enterprise than there are in engineering.

By year end 'twenty three.

If we could just get a little bit of color on you know how that turned out.

Yeah, I mean, I think what we had said was we.

Planned to be in the mid Twenty's in 'twenty, three and that's where we ended.

Okay great.

And then just a question on the on the on the long term cash targets.

James Heppelmann: And so as companies digitize, they're basically saying we need to have everybody in the enterprise logging into the system and getting real time data as opposed to working with data that's been exported out of the system and passed on and maybe on a date, maybe wrong, etc. Typically drawings and PDF files and so forth. So I think that there's a real opportunity and I think Neil's offering to quantify it a little bit more discreetly at the investor day. That was great. Jim, time to hear Neil look forward to working with you. Thanks.

You know you're kind of putting up some good numbers. Despite these these other headwinds.

I haven't gone back to the to the old model, but.

And anything incremental that they moved around and you on an operating basis, because the numbers seem pretty strong despite the the non fundamental headwinds.

I'm not 100% sure I'm understanding the question Steve.

No there isn't.

You know when we talked about some of the puts and takes meaning.

Steve Tusa: All right, next question comes from Steve Tusa with JP Morgan, please go ahead. Hey guys, good evening. Hey Steve. Jim congrats again. You know, great run for sure. Can you guys I think you guys said you would update us kind of annually on the staff trajectory. I think you would, you know, put out an illustrative model or at least like some sense of where you'd be is a percentage of ARR, you know, by year and 23 maybe if we could just get a little bit of color on, you know, how that turned out.

The interest payments are going to come down.

Cash taxes are going to go up.

But.

Otherwise, it's really just.

Operating the business.

Okay, Alright, I'll follow up offline. Thanks, a lot.

Thank you it looks like our next question comes from Jay Li Shower with Griffin Securities. Please go ahead.

Thank you good evening.

One thing that PTC does that I think is important and does rather well for.

For instance at live works is you share and some detail your product Roadmaps for Cat M and the other three letter acronyms, so with that in mind for Jim and Neil When you look into 'twenty four what do you think are some of the principal product development or release execute.

Steve Tusa: Yeah, I think what we had said was we planned to be in the mid-20s and 23, and that's where we ended. Okay, great. And then just a question on the long-term cash targets. You know, you're kind of putting up some good numbers despite these other headwinds. I haven't gone back to the old model, but anything incremental that they moved around and you want an operating basis. Because the numbers seem pretty strong despite the non fundamental headwinds.

<unk> said youre working on whether it's a developing atlas further or new forms of packaging like D. P M or anything else that you care to mention as far as the portfolio is concerned for for 24 and then for Christian question, that's often come up in the past which is about Europe.

Your sales coverage or customer account segmentation anything new that you've implemented $4 24 in terms of our channel programs channel margins or anything of that kind of out in the field that we should be aware of.

Steve Tusa: I'm not 100% sure I'm understanding the question, Steve. I like to know there isn't. You know, we talked about some of the puts and takes, meaning the interest payments are going to come down cash taxes are going to go up. But, you know, otherwise it's, it's really just operating the business. Okay, all right. I'll follow up all fine. Thanks a lot. Thank you.

So Jay Thanks for the question I'll start off and Jim could support here too on.

Roadmap first.

SLM I'll take that since this is a question in the last call we.

We are working on a release in December that ties servicemaster closer to serve as <unk> with a combined offering.

Jay Vleeschhouwer: Looks like our next question comes from Jay Vleeschhouwer with Griffin Securities. Please go ahead. Thank you.

That we believe will have nice reception to the marketplace as well as in the same release, a tie of service Max to Iot for.

Jay Vleeschhouwer: Good evening. I mean, one thing that TTC does that I think is important and does rather well, for instance, at live works is you share in some detail your product roadmaps for CAD, PLM, and the other three lighter acronyms. So with that in mind, for Jim and Neil, when you look into 24, what do you think are some of the principal product development or release executables that you're working on, whether it's developing Atlas further or new forms of packaging, like DPM or anything else that you care to mention as far as the portfolio is concerned for for 24.

Preventative maintenance.

Use cases between the two capabilities in terms of the broader portfolio.

Windchill, plus <unk>, plus <unk> plus as I said this remains a strategic relevant area that will continue to grow and emphasize and we've got a number of our leases for all the plus strategies that we have in 'twenty four that includes by the way things.

We're doing with Atlas in support of our plus strategy and then third and in order of priority by the way here code Beamer right. The a L. M L.

Jay Vleeschhouwer: And then for Christian question that's often come up in the past, which is about your sales coverage or customer accounts, fragmentation, anything new that you've implemented for 24 in terms of the channel programs, channel margins, anything of that kind out in the field that we should be aware of. So Jay, thanks for the question. I'll start off in Jim can support here too on on road map, first on SLM. I'll take that since this was a question in the last call.

Scale and continuing to capture what we're seeing is.

Strong demand and pipeline, we're making sure that we're taking here and code beamer and working through how that looks for the customer as well as augments to code Beamer in general to make sure that it's enterprise scalable.

In the regard that companies like Volkswagen are needing us to deliver for them on the on the end user experience piece, Jimmy that well just maybe the observed you know listening to you talk here.

Jay Vleeschhouwer: We are working on a release in December that ties service max closer to server logistics with a combined offering that we believe will have nice reception to the marketplace as well as in the same release a tie of service max to IOT for preventative maintenance use cases between the two capabilities in terms of the broader portfolio, you know, windshield plus Creole plus Kepler plus, as I said, this remains a strategic relevant area that will continue to grow and emphasize and we've got a number of releases for all the plus strategies that we have in 24. That includes, by the way, things that we're doing with Atlas in support of our plus strategy.

You kind of called out.

Projects that drive cross selling is a top priority projects.

Projects that drive SaaS as is our second priority is not far behind and then functionality.

Functionality scalability whatever of certain products in particular like <unk>, where we have a tiger by the tail and we want to make sure we're being responsive to it.

I think that'd be a way I can characterize it just reflecting on what you said.

Hey, Jay It's Christian then get the the.

Part two of your of your question.

So yes, we actually have.

Some incentives that were rolling out to drive.

To help to continue to drive growth in the channel.

As well as improve retention.

Jay Vleeschhouwer: And then third, in an order priority, by the way, here, code beamer, right, the ALM, you know, to scale and continue to capture what we're seeing is strong demand and pipeline, we're making sure that we're taking here and code beamer and working through how that looks to the customer as well as augments to code beamer in general to make sure that it's enterprise scalable in the regard that companies like Volkswagen are needing us to deliver for them on the on the end user experience piece. Do you minding that?

In that space. So there are some programs there and that's you know that's also.

Yeah.

Focusing on enabling them to you know obviously, they do a great job already at selling <unk>, we want to enable them to cross sell other parts of the portfolio.

Better.

And.

I didn't see a focus on both on Prem and and SaaS.

Particularly windchill plus <unk> plus and then on the direct side you know I would say that is.

Really just continued refinement of our you know the territory coverage that we have so.

Jay Vleeschhouwer: Well, just maybe to observe, you know, listening to talk here, you kind of called out projects that drive cross selling is a top priority. Projects that drive SaaS is a second priority, not far behind. And then, you know, functionality, scalability, whatever, certain products in particular, like code beamer, where we have a tiger by the tail and want to make sure we're being responsive to it. I think that'd be a way I could characterize it just reflecting on what you said.

But that's where we are.

Understood. Thank you.

Okay.

Great. Thank you. Our next question comes from Blair Abernethy with Rosenblatt Securities. Please go ahead.

Thanks very much.

Jim I Wonder if you could just expand a little more on the windshield.

Winchell plus in terms of what have you seen there so far I know, it's only been a few months.

Jay Vleeschhouwer: Hey Jack, it's Christian, so then get the part two of your question. So yeah, we actually have some incentives that we're rolling out to drive, you know, to help continue to drive growth in the channel, as well as improve retention, you know, in that space. So there are some programs there and that's, you know, that's also focusing on enabling them to, you know, obviously they do a great job already at selling CAD, PLM, we want to enable them to cross sell other parts of the portfolio, you know, better, and, and I should say, I'll focus on both on prem and, and SaaS, particularly windshield plus, Creo plus, and then on the direct side, you know, I would say that is, really just continued refined. So that's the assignment of, you know, the territory coverage that we have, so that's where we are. Understood.

Pushing that out there, but just wondering if you've got any sense at all as to what the revenue uplift might be.

Blair Abernathy: Thank you. Right, thank you.

There and also how are you positioning a windshield plus versus say arena in the market.

Yes.

Christian you want to address the what are we seeing in terms of uplift and then I can get the product.

The differentiation versus arena.

Yep.

So you know from an uplift so from an uplift perspective, we're continuing to see.

At this point better than what we are.

Have model.

Or communicated right that kind of two to two <unk> uplift.

You know I think we will see as we continue to progress through this I still think thats the right the right way to think about the long term opportunity.

But that's what we're seeing now.

And maybe I could add in the wind chill.

Versus arena positioning so.

Windchill teams up with cryo and sometimes with other CAD systems to kind of enable this digital thread. So typically larger companies who have complex products and they are more vertically integrated so theyre thinking how does this engineering data get used by manufacturing get used again by service and windshields orchestrating all of that complexity up and down the <unk>.

Blair Abernathy: Our next question comes from Blair Abernathy with Rosenblatt Securities, please go ahead. Thanks very much.

Christian Palpatia: Just kidding. Jim, I wonder if we can just expand a little more on the windshield plus in terms of, you know, what have you seen there so far? I know it's only been a few months that you've been pushing that out there, but I'm just wondering if you've got any sense at all as to what the revenue uplift might be there. And also, how are you positioning windshield plus versus say arena in the market?

Eugene Arena on the other hand is teamed up with on shape in this agile product development and typically sold to smaller fast moving high tech companies.

You know typically companies have a lot of electronics, a lot of software and a tremendous amount of contract manufacturing. So it's a different problem that arena is trying to solve an arena excels at how does an engineering team in one company work with a contract manufacturing team in another or perhaps even other suppliers involved to orchestra.

James Heppelmann: Yeah. Christian, you want to address the, what are we seeing in terms of uplift, and then I can hit the differentiation versus arena? Yep. So, you know, from an uplift perspective, you know, we're continuing to see, at this point, better than what we, you know, have model or communicated, right? That kind of two acts uplift, you know, I think we'll see as we continue to progress through this. I still think that's the right, the right way to think about the long term opportunity, but that's what we're seeing now.

Right that it's much more arena is much more focused on operations then on product configuration.

Much more well suited to a.

To a contract manufacturing type of setup that you see so frequently in the electronics industry. For example, so I would say.

Arena is a little bit of a special purpose product that did Paris very nicely.

With unshaped sort of like a nice read one where the stake or something like that.

James Heppelmann: And maybe I could add on the windshield versus arena positioning. So, you know, windshield teams up with Creo and sometimes with other cat systems to kind of enable this digital thread. So, typically larger companies who have complex products, and they're more vertically integrated, so they're thinking, how does this engineering data get used by manufacturing, get used again by service, and windshield orchestrating all that complexity up and down the value chain. Arena, on the other hand, is teamed up with on shape in this agile product development, and typically sold to smaller, fast moving high tech companies.

Addresses this problem that you know a fair number of manufacturers have.

Great. Thank you.

We will wrap up our Q&A session now and I will turn the call back over to Neil for closing remarks.

Sure. Thank you everyone for joining us and for your questions today Christian I will be both on the road in the weeks add participating in Investor conferences Christian will be at the RBC Conference in New York in mid November Christian also will be going to London in early December and we will be at the NASDAQ in Bahrenburg conferences I'll be at the Barclays.

Conference in San Francisco in early December we also have two bus tours coming to visit us at our Boston headquarters in early November those visits will be hosted by Christian and Mike <unk> reach out pleased to Bofa or bird, if you're interested and on behalf of the team. Thank you again, and we look forward to engaging with you.

James Heppelmann: You know, typically companies have a lot of electronics, a lot of software, and a tremendous amount of contract manufacturing. So, it's a different problem that arena is trying to solve and arena excels at how does an engineering team in one company work with a contract manufacturing team and another or perhaps even other suppliers involved to orchestrate that it's much more arena is much more focused on operations than on product configuration. Much more well suited to a contract manufacturing type of setup that you see so frequently in the electronics industry, for example.

Thank you ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Okay.

James Heppelmann: So, I'd say arena is a little bit of a special purpose product that pairs very nicely with on shapes, or like a nice red wine with a steak or something like that. And addresses this problem that, you know, a number of manufacturers have.

Unknown Attendee: Great, thank you.

Neil Barua: We will wrap up our Q&A session now, and I will turn the call back over to Neil for closing remarks. Sure, thank you, everyone for joining us and for your questions today. Christian, I will be both on the road in the week's end, participating in investor conferences. Christian will be at the RBC conference in New York in mid-November. Christian also will be going to London in early December and will be at the NASDAQ in Berenberg.

Neil Barua: I will be at the Barclays conference in San Francisco in early December. We also have two bus tours coming to visit us at our Boston headquarters in early November. Those visits will be hosted by Christian and Mike Dittullio. Reach out, please, to BFA or Baird, if you are interested, and on behalf of the team, thank you again and we look forward to engaging with you.

Unknown Attendee: Thank you, ladies and gentlemen, that concludes today's call. Thank you all for joining.

Unknown Attendee: You may now disconnect.