Q1 2024 PTC Inc Earnings Call

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Operating results because such statements deal with future events actual results may differ materially from those projected in the forward looking statements additional information.

Nation 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 January 31st 2024, and PTC assumes no obligation to update these forward looking statements.

The call PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

Installation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website.

With that I'd like to turn the call over to Ptc's, Chief Executive Officer, Jim helpful. Matt.

Jim: Thank you Matt good afternoon, everyone and thank you for joining us.

Jim: There may be an issue displaying the presentation materials. So if you don't see them I invite you to go to investor adopt P. D. G Dot com, you'll find the same presentation materials. They are and you can follow along.

Jim: We are right now on slide three.

Jim: I'm pleased to report that PTC is Q1 results provided a good start to our fiscal 'twenty four.

Jim: We delivered solid financial results, while in parallel making great progress on CEO succession.

Jim: Over the past six months, Neil and I have run at textbook transition process and we're nearing the culmination.

Jim: We spent a lot of time together and traveled the world extensively to accomplish the goal we articulated our seamless transition that ensures continuity and ptc's strategy and momentum.

Jim: Neil is ready to be CEO, he understands our business well he is fully committed to our strategy and he has the full support of an outstanding executive team.

Jim: Confidence the P. D C will continue to drive growth and profitability well into the future under neils leadership with that I'd like to turn it over to Neil to discuss the Q1 results Neil Thank.

Neil: Thank you Jim we're on slide five today I'll focus my comments on three topics first what I've learned about PTC over the past several months second the drivers of PTC is durable and consistent growth and third driving further value creation with disciplined and consistent execution.

After my remarks, I will hand over the call to Christian to take you through our Q1 results and our guidance then we will have a Q&A session.

Christian: Upfront I'd like to say a big thank you to Jim for sharing his industry insight and wealth of knowledge over the past year.

Christian: <unk> has gone very well and has been helpful to have Jim participate as I've engaged with customers employees and investors.

Honored to be taking over the CEO role on February 14th.

Christian: PTC on a solid trajectory credit to Jim and the team.

Christian: Have a great strategy based on our differentiated portfolio of assets and led by a strong team.

Christian: As I said my initial focus is on ensuring that we keep building on our momentum with disciplined and consistent execution.

Christian: Turning to slide six.

Christian: Our customers design manufacture and service products.

Christian: Most of our large customers produce and service the world's most critical assets for example, wind turbines tractors automobiles and MRI machines.

Christian: The biggest learning I've had relates to what I am seeing in our customer base and how much we could do for them.

Christian: Digital transformation is clearly taking hold with our customers around the world and finally is here to stay.

Christian: Industrial companies can't have manual antiquated are disconnected workflows, if they want to be competitive in today's complex world.

Christian: Our customers need to modernize the portion of their operations that spans from design to manufacturing to service <unk>.

Christian: Importantly, our core products are the essential foundation for that.

Christian: Turning to slide six seven.

Christian: Industrial companies are still at early stages of leveraging product data effectively across their organizations, but they have started to move on it in a meaningful way.

Christian: We see the opportunity the same way our customers do.

Christian: Digital transformation is a journey.

Christian: Our broad portfolio provides a lot of opportunity to help our customers be competitive irrespective of soft PMI and economic cycles.

Christian: Next on slide eight.

Christian: Second major learning is that the overall P. T. C team is strong and capable as I visited our offices around the world I spent a lot of time doing skip level, one on one meetings and town halls, I was inspired by the caliber and spirit of our people.

Christian: Impressed by their extensive product understanding and deep customer relationships.

Christian: Their enthusiasm is palpable they realize the opportunity ahead of us and that we have a portfolio of capabilities to win big.

Christian: Turning to slide back.

Christian: I also feel very good about the strength of my highly experienced leadership team and how we will operate going forward.

Christian: My style is to bring what I am hearing from customers into the conversation and capture the energy and ideas from each team member.

Christian: This collaborative framework is already working well and as a team we are making progress in aligning on ptc's value creation opportunities going forward and our focus energies towards that.

Speaker: operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statement.

Christian: Let's turn to slide 10.

Speaker: 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, January 31st, 2024, and PTC assumes no obligation to update these forward-looking statements. During the call, PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

Christian: On our past couple of earnings calls, we have been sharing this framework, which shows the cumulative drivers that support our topline growth.

Christian: Fiscal 'twenty four is expected in your eight consecutive year of double digit organic constant currency growth.

Christian: A key point to understand is that our topline growth as sustainable supported by the many layers of cumulative drivers that we have built over time.

Each layer contributes to our ability and drive value for customers and as our customers continue to invest in digital transformation, our comprehensive product portfolio differentiates PTC.

Speaker: A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website. With that, I'd like to turn the call over to PTC's Chief Executive Officer, Jim Heppelmann. Thank you, Matt. Good afternoon, everyone, and thank you for joining us. There may be an issue displaying the presentation materials.

Christian: This is because PTC is the only company that can help industrial manufacturers drive closed loop product lifecycle management across engineering manufacturing quality and service.

Christian: Moving to slide 11.

Christian: We have also been sharing this framework on recent earnings calls, which shows the cumulative drivers that support our bottom line growth.

James E. Heppelmann: So if you don't see them, I invite you to go to investor.ppc.com. You'll find the same presentation materials there, and you can follow along. We are right now on slide three. I'm pleased to report that PTC's Q1 results provided a good start to our fiscal 24. We delivered solid financial results while, in parallel, making great progress on CEO success. Over the past six months, Neil and I have run a textbook transition process, and we're nearing the culmination. We spent a lot of time together and traveled the world extensively to accomplish the goal we articulated of a seamless transition that ensures continuity in PPC's strategy and momentum. Neil is ready to be CEO.

Christian: As with the previous slide every layer and this framework is important.

Christian: The key point on this slide is that our strong free cash flow growth in recent years is attributed not only to our solid top line growth, but also towards subscription license business model and strong operational discipline.

Christian: I am fully aligned with Christian on the Paramount importance of our free cash flow guidance, and we have a high level of confidence in the targets we have provided.

Christian: Turning to slide 12.

My philosophy on resource allocation is our focus and discipline are important.

Christian: To that end it is our view that we have a compelling portfolio in place.

Christian: The key things to get right are to focus on evolving customer needs and to drive strong and consistent execution towards that.

James E. Heppelmann: He understands our business well, he's fully committed to our strategy, and he has the full support of an outstanding executive team. I'm confident that PDC will continue to drive growth and profitability well into the future under Neil's leadership. With that, I'd like to turn it over to Neil to discuss the Q1 results.

Christian: To ensure this consistency we will put a clear focus on our highest ROI opportunities.

We will be disciplined and unemotional when it comes to prioritizing our time and resources on the products and product integrations that will create the most value for our customers.

Neil: Thank you, Jim. We're on slide five. Today, I'll focus my comments on three topics. First, what I've learned about PTC over the past several months. Second, the drivers of PTC's durable and consistent growth. And third, driving further value creation with discipline and consistent execution. After my remarks, I'll hand over the call to Kristian to take you through our Q1 results and our guidance. Then we will have a Q&A session.

Christian: To use an analogy we plan to put more wood behind the most important arrows to ensure we drive the best outcomes for our customers and PTC.

Let's now turn our attention to these priorities.

Christian: Expanding our P L M or product lifecycle management footprint at customers, both within engineering departments and enterprise wide. There are two main reasons for this secular trend.

Christian: First.

Neil: Up front, I'd like to say a big thank you to Jim for sharing his industry insight and wealth of knowledge over the past. The transition has gone very well, and it has been helpful to have Jim participate as I've engaged with customers, employees, and investors. I'm honored to be taking over the CEO role on February 14th with PTC on a solid trajectory. Credit to Jim and the team.

Christian: <unk> systems have evolved to meet the complexities faced today by industrial manufacturing companies.

Christian: That's just one example, the vulgar group.

Christian: Chief Digital Officer, and Chief Technology Officer, I was speaking to yesterday.

Christian: Users windshield to manage their platform product strategy, which leverages modular components.

Christian: Fifth vacated configuration management capabilities of windchill have enabled the volatile group to produce more product variance while at the same time lowering their unique part count.

Neil: We have a great strategy based on a differentiated portfolio of assets led by a strong team. As I said, my initial focus is on ensuring that we keep building on our momentum with discipline and consistent execution. Turning to slide six, our customers design, manufacture, and service products. Most of our large customers produce and service the world's most critical assets, such as wind turbines, tractors, automobiles, and MRI machines.

Christian: Which is good for the vulnerable groups top line as well as their bottom line.

Christian: Industrial companies have come to understand that their ERP systems are in adequate to handle these types of complexities paint.

Christian: They now view their P. L. M systems are strategic and spending on <unk> is in focus.

Christian: Secondly, industrial companies are facing competitive pressures and are looking for new ways to drive productivity and efficiency.

Neil: The biggest learning I've had relates to what I am seeing in our customer base and how much we can do for them. Digital transformation has clearly taken hold with our customers around the world and is finally here to stay. Industrial companies cannot have manual, antiquated, or disconnected workflows if they want to be competitive in today's complex world.

As they digitally transform they also re architect their workflows to streamline inefficiencies and drive collaboration with their manufacturing quality and service operations.

Christian: Ken It is the P. A L M system that takes center stage as this happens because the pls system is becoming the system of record for product data and that makes the PM system. The epicenter for digital transformation our product companies.

Neil: Our customers need to modernize the portion of their operations that spans from design to manufacturing to service. Importantly, our core products are the essential foundation for that. Turning to slides six and seven.

Christian: Increasingly <unk> systems are being leverage as the backbone for sharing product data across departments as well as with design and supply chain partners. This is good news for PTC.

Neil: Industrial companies are still at early stages of leveraging product data effectively across their organizations, but they have started to move on it in a meaningful way. We see the opportunity the same way our customers do. Digital transformation is a journey. Our broad portfolio provides a lot of opportunity to help our customers be competitive, irrespective of soft PMIs and economic cycles.

Christian: Market is coming to us where we are strong.

Christian: Another large value creation opportunities cross sell.

Christian: PTC has done this successfully over the years and we have additions to the portfolio that are meeting evolving customer needs and therefore presents significant opportunities for PTC.

Christian: One is a L M or application lifecycle management, which is led by code Beamer and is now augmented by our acquisition of peer variance.

Neil: My second major learning is that the overall PTC team is strong and capable. As I visited our offices around the world, I spent a lot of time doing skip level, one-on-one meetings, and town hall meetings. I was inspired by the caliber and spirit of our people.

Christian: Here, we have the most modern and capable <unk> solution in the market.

Christian: Products now contain more embedded software than ever and for many products. There's been an explosion in the number of unique software configurations that need to be developed and updated over time.

Neil: I was impressed by their extensive product knowledge and deep customer relationships. Their enthusiasm is palpable. They realize the opportunity ahead of us and that we have a portfolio of capabilities to win big. Turning to slide nine.

Christian: Code fever is a nexgen software development platform that enables industrial companies to manage this increasing level of complexity.

Christian: Your variance augments code beamer with industry, leading software variant management capabilities, which is a key differentiator.

Neil: I also feel very good about the strength of my highly experienced leadership team and how we will operate going forward. My style is to bring what I am hearing from customers into the conversation and capture the energy and ideas from each team member. This collaborative framework is already working well, and as a team, we are making progress in aligning PTC's value creation opportunities going forward and our focus energies towards them. Let's turn to slide 10.

Christian: While demand from the auto industry and its suppliers are a strong driver of growth demand for <unk> tools as it is expanding in other verticals as well due to the trend towards software driven products of all types.

Christian: This is an interesting growth opportunity and we have been increasing our investments and focus in this area.

Christian: Our second cross sell opportunities service Max We acquired service back in January 2023, and a strategic fit with PTC is solid.

Neil: On our past couple of Burning Skulls, we have been sharing this framework, which shows the cumulative drivers that support our top-line growth. Fiscal 24 is expected to be your eighth consecutive year of double-digit organic constant currency ARR. A key point to understand is that our top-line growth is sustainable, supported by the many layers of cumulative drivers that we have built over time. Each layer contributes to our ability to deliver value for customers. And as our customers continue to invest in digital transformation, our comprehensive product portfolio differentiates. This is because PTC is the only company that can help industrial manufacturers drive closed-loop product lifecycle management across engineering, manufacturing, quality, and service. Moving to slide 11.

Christian: For many of our customers growing the services business is their top priority.

Christian: As a system of record for high value long lifecycle assets in the field service Mac significantly enhances our SLM or service lifecycle management portfolio, enabling PTC to now offer the industry's first truly comprehensive solution for service process optimization.

Christian: The opportunity set here is large and this segment is underpenetrated today with most of our wins, replacing homegrown or spreadsheet based systems.

Surface Max has approximately 300 customers and PTC has approximately 3000 with the exact same profiles.

Christian: Industrial companies that produce complex high value assets.

Neil: We've also been sharing this framework on recent earnings calls, which shows the cumulative drivers that support our bottom line growth. As with the previous slide, every layer in this framework is important. The key point on this slide is that our strong free cash flow growth in recent years is attributed not only to our solid top-line growth but also to our subscription-licensed business model and strong operational discipline. I am fully aligned with Kristian on the paramount importance of free cash flow guidance, and we have a high level of confidence in the targets we've provided. Turning to slide 12.

Christian: This provides us with a clear cross sell opportunities and we have now aligned the PTC sales teams with the service Mac sales specialists to go to market together, we are building momentum, but keep in mind that this will take some time to develop because sales cycles for this type of product or along given there.

Christian: There are new implementations for the most part.

Christian: Clearly continuing to grow CAD and converting our installed base over to SaaS.

Christian: Across all products are two additional opportunities.

Christian: Which overlap to some extent because we will see conversion of <unk> customers to our Creole plus SaaS offering over time much like windchill plus.

Neil: My philosophy on resource allocation is that focus and discipline are important. To that end, it is our view that we have a compelling portfolio in place. Key things to get right are to focus on evolving customer needs and to drive strong and consistent execution towards that. To ensure this consistency, we will put a clear focus on our highest ROI opportunities.

Christian: For customers moving to SaaS enables a different collaboration paradigm to bring significant productivity benefits, making real time multi user collaboration possible.

Christian: Beyond the productivity benefits customers also want the lower total cost of ownership and improved security posture that SaaS offers.

Neil: We will be disciplined and unemotional when it comes to prioritizing our time and resources on the products and product integrations that will create the most value for our customers. To use an analogy, we plan to put more wood beyond the most important arrows to ensure we drive the best outcomes for our customers and PTC. Let's now turn our attention to these priorities. Expanding our PLM or Product Lifecycle Management footprint at customers both within engineering departments and enterprise-wide. There are two main reasons for this secular trend. First, PLM systems have evolved to meet the complexities faced today by industrial manufacturing companies, as just one example, the Bulborger.

Christian: As we have stated previously we see this as another 10 plus year journey for our customers, we have visibility to solid growth in our core on premise business and therefore don't need to rush things and force customers to move before they are ready.

Christian: The opportunity will be with us for a long time.

Christian: Therefore, our focus is making sure our SaaS transition is done with an optimized customer experience.

Christian: It is a tight community so credibility and references are important.

Christian: Wrapping up on slide 13.

Speaker Change: I'm honored.

Speaker Change: To be stepping in at such an exciting time.

Neil: The Chief Digital Officer and Chief Technology Officer I was speaking to yesterday use Windchill to manage their platform product strategy, which leverages modular components. The sophisticated configuration management capabilities of Windchill have enabled the Volvo Group to produce more product variants while at the same time lowering their unique part count, which is good for the Volvo Group's top line as well as its bottom line. Industrial companies have come to realize that their ERP systems are inadequate to handle these types of complexes.

Speaker Change: There are so many good things happening at PTC and so many opportunities to drive further value in part because of the portfolio of products that Jim and the team built over the years and the distinct needs of the market.

Speaker Change: PTC is well positioned to deliver sustainable or are in free cash flow growth based on layers of cumulative growth and profit drivers.

Speaker Change: We are putting as I said more wood behind the most important arrows to drive the best outcomes for our customers and I am focused on working with the team to enhance ptc's execution on the opportunities that drive the most customer and shareholder value.

Neil: They now view their PLM systems as strategic, and spending on PLM is in focus. Secondly, industrial companies are facing competitive pressures and are looking for new ways to drive productivity and efficiency. As they digitally transform, they also re-architect their workflows to streamline inefficiencies and drive collaboration with their manufacturing, quality, and service operations. Again, it is the PLM system that takes center stage as this happens because the PLM system is becoming the system of record for product data. And that makes the PLM system the epicenter for the digital transformation of products. Increasingly, PLM systems are being leveraged as the backbone for sharing product data across departments, as well as with design and supply chains.

Speaker Change: We plan to host an Investor day, this year and share more about our key medium to long term opportunities.

Speaker Change: We are working towards becoming more consistent with our messaging and more focus and how we prioritize our time and resources.

Speaker Change: It is a great time to be at PTC, because we have a clear path to unlocking a lot of value with that I'll hand, the call over to Christian to take you through our Q1 financial results.

Christian: Thanks, Neil and Hello, everyone.

Christian: Starting off with slide 15.

Christian: <unk> again delivered solid financial results in terms of both.

Christian: Our our <unk> and free cash flow.

Christian: We believe are the most important metrics to assess the performance of our business.

Christian: Our constant currency growth was 23% in Q1 and.

Christian: And on an organic basis, excluding service Max our growth was 13%.

Neil: This is good news for PTC. The market is coming to where we are strong. Another large valley creation opportunity is cross-selling. PTC has done this successfully over the years, and we have additions to the portfolio that are meeting evolving customer needs and therefore present significant opportunities for PTC. One is ALM, or Application Lifecycle Management, which is led by CodeBeamer and is now augmented by our acquisition of Pure Variant.

Note that we acquired service Max in Q2 of fiscal 'twenty three.

Christian: So starting next quarter Q2 of fiscal 'twenty, four we will no longer exclude service Max from our organic results.

Christian: To help investors understand our business performance, excluding the impact of FX volatility, we've been providing <unk> guidance and disclosing our are our results on a constant currency basis.

Neil: Here, we have the most modern and capable ALM solution in the market. Products now contain more embedded software than ever. And for many products, there's been an explosion in the number of unique software configurations that need to be developed and updated over time. CodeBeamer is a next-gen software development platform that enables industrial companies to manage this increasing level of complexity.

Christian: At the end of Q1, our constant currency a R. R was $2.016 billion slightly above the guidance range, we provided for the quarter.

Christian: In Q1, our cash flow results also came in slightly ahead of our guidance with operating cash flow of $187 million and free cash flow of $183 million.

Neil: Pure Variants augments CodeBeamer with industry-leading software variant management capabilities, which is a key differentiator. While demand from the auto industry and its suppliers is a strong driver of ALM growth, demand for ALM tools is expanding in other verticals as well, due to the trend toward software-driven products of all types. Clearly, this is an interesting growth opportunity, and we have been increasing our investments and focus in this area. Our second Cross-Sell Opportunity is ServiceMax. We acquired ServiceMax in January 2021, and the strategic fit with PTC is solid. For many of our customers, growing their services business is their top priority. As a system of record for high-value, long-life cycle assets in the field, ServiceMax significantly enhances our SLM or Service Life Cycle Management portfolio, enabling PTC to now offer the industry's first truly comprehensive solution for service process optimization. The opportunity set here is large, and this segment is underpenetrated today, with most of our wins replacing homegrown or stretchy-based systems. ServiceMax has approximately 300 customers, and the CDC has approximately 3,000 with the exact same profile, industrial companies that produce complex, high-value assets.

Christian: As a reminder, our Q1 cash flows included a 30 $30 million of imputed interest related to the deferred payment for service Max.

Christian: Our cash flow performance is driven by our E. R R and operating efficiency and in Q1, we extended our track record of disciplined operational management, while continuing to invest in key priorities like a L M and SaaS.

Christian: Yes.

Christian: Turning to slide 16.

Christian: Let's look at our growth by geographic region.

Christian: Although FX continues to be volatile and the selling environment remain challenging in Q1, our constant currency organic growth was solid across the Americas Europe and APAC.

Christian: With growth in the low to mid double digits in APAC, our year over year organic constant currency growth increased to 14% in Q1 compared to 12% in Q4.

Christian: And in the Americas, and Europe, our organic year over year constant currency growth in Q1 was comparable to what we saw in Q4.

Christian: Turning to slide 17, let's.

Christian: Let's look at our growth by product groups.

In CAD, we delivered 10% constant currency growth in Q1 with the growth primarily driven by Korea.

Neil: This provides us with clear cross-sell opportunities, and we have now aligned the PTC sales teams with the ServiceMax sales specialists to go to market together. We are building momentum. But keep in mind that this will take some time to develop because sales cycles for this type of product are long given their new implementations for the most part. Clearly, we are continuing to grow CAD and converting our install base over to SAS. Across all products, there are two additional opportunities, which overlap to some extent, because we will see conversion of Creo customers to our Creo Plus SaaS offering over time, much like Windchill Plus. For customers, moving to SaaS enables a different collaboration paradigm that brings significant productivity benefits, making real-time multi-user collaboration possible.

Christian: In P. L M. Our constant currency growth was 33%.

Christian: 19 points of this growth was attributable to service Max and therefore, our organic constant currency growth in Q1 was 14%.

Christian: In <unk>, our organic growth was primarily driven by wind chill and also supported by strong percentage growth and a L. M. Thanks to Cowen Beamer.

Although the manufacturing PMI have indicated a sluggish overall demand environment for many quarters now our topline has shown good resilience.

Christian: Part of this is because of our subscription license model, our low churn rates and the propensity for our customer base to prioritize R&D investments through challenging times.

Christian: In addition, as Neil explained earlier.

Neil: Beyond the productivity benefits, customers also want the lower total cost of ownership and improved security posture that SAS offers. As we have stated previously, we see this as another 10 plus year journey for our customers. We have visibility to solid growth in our core on-premise business, and therefore, we don't need to rush things and force customers to move before they are ready.

Christian: Our solid <unk> growth is being supported by the digital transformation journeys of our customers, which we believe is a secular trend.

Christian: Moving to slide 18.

Christian: We ended the first quarter with cash and cash equivalents of $265 million.

Christian: Given the consistency and predictability of our free cash flow, we aim to maintain a low cash balance and prefer to maximize debt reduction.

Neil: The opportunity will be with us for a long time. Therefore, our focus is making sure our SaaS transition is done with an optimized customer experience. It is a tight community, so credibility and references are important.

Christian: Our gross debt was 2.267 billion with an aggregate interest rate of five 7%.

Christian: During Q1, our gross debt decreased by $55 million.

Neil: Wrapping up on slide 13. I'm honored to be stepping in at such an exciting time. There are so many good things happening at PTC and so many opportunities to drive further value, in part because of the portfolio of products that Jim and the team built over the years and the distinct needs of the market. PTC is well positioned to deliver sustainable ARR and free cash flow growth based on layers of cumulative growth and profit drivers. We are putting, as I said, more wood behind the most important arrows to drive the best outcomes for our customers, and I am focused on working with the team to enhance PTC's execution on the opportunities that drive the most customer and shareholder value. We plan to host an investor day and share more about our key medium to long-term opportunities.

Christian: We used $181 million of cash to pay down debt, which was partially offset by $96 million primarily related to a pure systems and the $30 million imputed interest payment related to the final payment for service Max transaction, which we discussed previously.

Christian: We were two eight times levered at the end of Q1, 'twenty, four and expect that to trend down throughout the remainder of the year as we're prioritizing paying down our debt this fiscal year.

Christian: We intend to use substantially all of our free cash flow to pay down our debt this year.

Christian: Expect to end the year with gross debt of approximately $1 7 billion.

Christian: In connection with this we've temporarily paused our share repurchase program and expect our diluted share count to increase by approximately 1 million shares in fiscal 'twenty four.

Neil: We are working towards becoming more consistent with our messaging and more focused in how we prioritize our time and resources. It is a great time to be a... because we have a clear path to unlocking a lot of value. With that, I'll hand the call over to Kristian to take you through our Q1 financial results. Thanks, Neal, and hello, everyone.

Heading into fiscal 'twenty, five we'll revisit the prioritization 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.

Kristian: Starting off with slide 15, PTC again delivered solid financial results in terms of both ARR and free cash flow, which we believe are the most important metrics to assess the performance of our business. Our constant currency ARR growth was 23% in Q1. And on an organic basis, excluding Service Max, our growth was 13%. Note that we acquired ServiceMax in Q2 of fiscal 23.

Christian: With that I'll take you through our guidance on slide 19.

Christian: We're maintaining our fiscal 'twenty for guidance and following our solid Q1 results.

Christian: Believe we're well positioned to deliver on our guidance for the full year.

Christian: For Q2, our constant currency guidance range of 2.05 to 2.065 billion corresponds to year over year growth of 11% to 12% I'll get into more detail on the next slide.

Kristian: So starting next quarter, Q2 of fiscal 24, we will no longer exclude Service Max from our organic results. To help investors understand our business performance, excluding the impact of FX volatility, we've been providing ARR guidance and disclosing our ARR results on a constant currency basis. At the end of Q1, our constant currency ARR was $2.016 billion, slightly above the guidance range we provided for the quarter. And in Q1, our cash flow results also came in slightly ahead of our guidance, with operating cash flow of $187 million and free cash flow of $183 million. As a reminder, our Q1 cash flows included $30 million of imputed interest related to the deferred payment for services. Our cash flow performance is driven by our ARR and operating efficiency, and in Q1, we extended our track record of disciplined operational management while continuing to invest in key priorities like ALM and SAS. Turning to slide 16.

Christian: On cash flows we're guiding to free cash flow of approximately $240 million in the second quarter.

Christian: To help you with your models, we are continuing to provide revenue and EPS guidance, but as a reminder.

Christian: 606 makes revenue and EPS difficult to predict for PTC since we sell primarily on premises subscription license licenses and the way revenue is recognized from these contracts can vary significantly based on variables.

Christian: But we don't believe are necessarily relevant to the performance of the business.

Christian: I actually did a teach in on this subject on our Q4 'twenty to call that you may want to refer to if you're new to PTC.

Christian: The summary is we believe a or are in free cash flow rather than revenue and operating income are the best metrics to assess the performance of our business.

Christian: Importantly, we remained consistent we've maintained consistent billing practices overtime, and we primarily bill our customers annually upfront one year at a time, regardless of contract term lengths. So our free cash flow results overtime are comparable.

Kristian: Let's look at our ARR growth by geographic region. Although FX continues to be volatile and the selling environment remains challenging in Q1, our constant currency organic ARR growth was solid across the Americas, Europe, and APAC, with growth in the low to mid-double digits. In APAC, our year-over-year organic constant currency growth increased to 14% in Q1 compared to 12% in Q4. And in the Americas and Europe, our organic year-over-year constant currency growth in Q1 was comparable to what we saw in Q4. Turning to slide 17.

Christian: Moving on to.

Christian: Slide 20.

Christian: Here's an illustrative constant currency, a or our model for Q2 24.

Christian: You can see our results over the past nine quarters and the column on the far right illustrates what is needed to get to the midpoint of our constant currency a or our guidance.

Christian: This illustrative model indicates that to hit the midpoint of our Q2 guidance range, we need $41 million of sequential net <unk> growth.

Kristian: Let's look at our ARR growth by product. We delivered 10% constant currency ARR growth in Q1, with the growth primarily driven by CREO. In PLM, our constant currency ARR growth was 33%.

Christian: Because our a R R.

Christian: It tends to see some seasonality the most relevant comparison is the sequential growth in Q2 of 'twenty three in Q2 of 'twenty two.

Christian: We believe we've set our Q2 'twenty for constant currency guidance range prudently, which reflects an ongoing sluggish selling environment.

Kristian: 19 points of this growth was attributable to ServiceMax, and therefore, our organic constant currency growth in Q1 was 14, and PLM, our organic growth was primarily driven by windchill and also supported by strong percentage growth in ALM thanks to code. Although the manufacturing PMIs have indicated a sluggish overall demand environment for many quarters now, our top line has shown good resilience. Part of this is because of our subscription license model, our low churn rates, and the propensity for our customer base to prioritize R&D investments through challenging times. In addition, as Neil explained earlier, Our solid ARR growth is being supported by the digital transformation journeys of our customers, which we believe is a secular trend. Moving to slide 18. We ended the first quarter with cash and cash equivalents of $265 million.

Putting this into the context of the full year, let's turn to slide 21.

Christian: Here's a repeat of a slide we showed last quarter was it which illustrates what's needed to get to the midpoint of our constant currency guidance for fiscal 'twenty four.

Christian: Looking at the full year perspective naturally removes a lot of the quarterly volatility related to large transactions and ramp deal and start date dynamics.

Christian: As you can see on the slide for illustrative purposes.

Christian: Even if the full year is flattish with the last two years from a net new <unk> perspective.

Christian: Given the incremental $20 million of deferred or are in the back half, which we've talked about before.

Christian: We would be at 12% growth for the year.

We think the full year guidance range of 11% to 14% balances both risk and opportunity.

Kristian: Given the consistency and predictability of our free cash flow, we aim to maintain a low cash balance and prefer to maximize debt reduction. Our gross debt was $2.267 billion, with an aggregate interest rate of 5.7%. During Q1, our gross debt decreased by $55 million. We used $181 million of cash to pay down debt, which was partially offset by $96 million, primarily related to Pure Systems and the $30 million imputed interest payment related to the final payment for the ServiceMax transaction, which we discussed previously. We were 2.8 times levered at the end of Q1-24 and expect that to trend down throughout the remainder of the year as we're prioritizing paying down our debt this fiscal year. We intend to use substantially all of our free cash flow to pay down our debt this year and expect to end the year with gross debt of approximately $1.7 billion.

Christian: Finally on free cash flow, we continue to have a high degree of confidence in our quarterly and full year guidance because of the predictability of our cash collections and the disciplined budgeting process, we have in place.

Speaker Change: So in conclusion PTC has a.

Speaker Change: Strong portfolio and strategy and a great team of people with deep expertise and strong customer relationships.

Speaker Change: We're focused on disciplined and consistent execution.

Speaker Change: Ensure we deliver on the value creation opportunities we have ahead of us.

Speaker Change: With that I'd like to turn the call over to the operator to begin the Q&A session.

Speaker Change: 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.

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

And your first question comes from the line of Joshua Tilton with Wolfe Research.

Kristian: In connection with this, we've temporarily paused our share repurchase program and expect our diluted share count to increase by approximately 1 million shares in fiscal 24. Heading into Fiscal 25, we'll revisit the prioritization 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. With that, I'll take you through our guidance on slide 19. We're maintaining our fiscal 24 guidance, following our solid Q1 results. We believe we're well positioned to deliver on our guidance for the full year. For Q2, our constant currency ARR guidance range is 2.05 percent. 2.065 billion corresponds to year-over-year growth of 11 to 12 percent.

Joshua Tilton: Your line is open.

Joshua Tilton: Hey, guys. Thanks for taking my questions I'll try and.

Joshua Tilton: Maybe two in Europe again.

Joshua Tilton: Just the first one I thought was pretty interesting you mentioned, the selling environment still remains challenging and sluggish this quarter.

Joshua Tilton: I guess my question is was it more challenging than you guys were expecting 90 days ago.

Joshua Tilton: Is it any better than Q4, and maybe kind of how do you expect that selling environment to be for the rest of the year.

Joshua Tilton: Yes. Thanks for the question this is Neil.

Neil: We haven't seen any change it's been a sluggish sales environment for a number of years now, particularly around the approval cycles of our customers. It's just taking a lot and it has been for multiple years nothing's changed worse or better since.

Speaker Change: I've been here during the transition time and currently how we're looking at Q2.

Speaker Change: And maybe given given that answer.

Speaker Change: And the guidance is kind of out there it is implying that a lot of growth, especially in the net new <unk> to come through in the second half.

Speaker Change: I guess, maybe just remind us I know you have the deferred air our balance of what's kind of giving you guys the confidence in.

Kristian: I'll get into more details on the next slide. On cash flows, we're guiding for a free cash flow of approximately $240 million in the second quarter. To help you with your models, we're continuing to provide revenue and EPS guidance, but as a reminder, ASC-606 makes revenue and EPS difficult to predict for PTC since we sell primarily on-premises. The way revenue is recognized from these contracts can vary significantly based on variables that we don't believe are necessarily relevant to the performance of the business.

Speaker Change: In that second half net new IRR growth, especially in the context of the <unk>.

Yeah, I'll start and Christian can add if I Miss anything.

Speaker Change: First of all looking at the pipeline of opportunities I.

Speaker Change: I feel confident around that number and the size of the deals the criticality of the customers the importance of the customers that we're working with hand in hand to get to a conclusion to move up and down this digital transformation journey and so when we look at that that pipeline is inter.

Speaker Change: <unk> to us in a manner that gives us confidence around the guidance that we gave to you.

Speaker Change: That we are now targeting and so that's a that's an element of it again to be clear. This doesn't assume that anything changes in the selling environment from now till the end of the year. There's just an element of pipeline and a seasonality that we've always had quite frankly in the second half where.

Kristian: I actually did a teach-in on this subject on our Q4-22 call that you may want to refer to if you're new to PTC. The summary is, we believe ARR and free cash flow, rather than revenue and operating income, are the best metrics to assess the performance of our business. Importantly, we've maintained consistent billing practices over time, and we primarily bill our customers annually, up front, one year at a time, regardless of the contract term.

Speaker Change: These types of deals we've historically been able to close out and our intent is to do the same this year.

Speaker Change: Yeah.

Speaker Change: Super helpful. Thank you.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Thank you. Your next question comes from the line of Clarke Jeffries with Piper Sandler.

Kristian: So our free cash flow results, over time, are complex. Moving on to slide 20, here's an illustrative constant currency ARR model for Q2-24.

Clarke Jeffries: Mark Your line is open.

Clarke Jeffries: Hello, Thank you for taking the question great to see the resiliency of the business.

Clarke Jeffries: Neil I was hoping you could expand on your comments around the timeline for the cross sell for service Max It seems like you've made some early progress in aligning the go to market, but could you help us think through what that success in cross sell looks like in fiscal 'twenty for what it looks like in fiscal 'twenty, five and what's a reasonable timeline to reach its stride in terms.

Kristian: You can see our results over the past nine quarters, and the column on the far right illustrates what is needed to get to the midpoint of our constant currency ARR guidance. This illustrative model indicates that to hit the midpoint of our Q2 guidance range, we need 41 million of sequential net ARR growth. Because our ARR tends to see some seasonality, the most relevant comparison is the sequential growth in Q2 of 23 and Q2 of 22.

Clarke Jeffries: Of reaching the existing customer base as well thank you.

Yeah, Great question, Thank you for asking it.

Speaker Change: Look the first year.

Neil: Since clearly are very familiar with service back to hear my background. The first year has been integration work and really getting to know the ways in which the service vacs team could interact.

Neil: Precise way with the PDC team.

Neil: We did that we accomplish that we had early success, which creates some momentum secondly, after we saw that we've implemented a far more constructive and direct selling process by which the service back sellers are now very much tied into how the PTC sellers are going forward in this fiscal year.

Kristian: We believe we've set our Q2 24 constant currency guidance range prudently, which reflects an ongoing sluggish selling environment. Putting this into the context of the full year, let's turn to slide 21. Here's a repeat of the slide we showed last quarter which illustrates what's needed to get to the midpoint of our constant currency ARR guidance for fiscal 24. Looking at the full year perspective naturally removes a lot of the quarterly volatility related to large transactions and ramp deal and start date dynamics. As you can see on the slide, for illustrative purposes, even if the full year is flattish with the last two years from a net new ARR perspective, given the incremental $20 million of deferred ARR in the back half, which we've talked about before, we would be at 12% growth for the year. We think the full-year guidance range of 11-14% balances both risk and opportunity. Finally, on free cash flow, we continue to have a high degree of confidence in our quarterly and full-year guidance because of the predictability of our cash collections and the disciplined budgeting process we have in place.

Neil: And what's that causes two things the customer base is now understanding of the PTC broader value proposition of the digital thread Wi service backs is so critical to be part of that number one so that's creating a level of interest engaged created quite frankly.

Neil: Momentum that we've already been seeing and to the sellers now have a familiarity of speaking the language that's necessary for service back to begin to scale.

Neil: I foresee this year to be a time period, given the sales cycles of service backs. These are all new implementations for the most part even if they are already existing PTC customers that takes a bit of time and I see this year as building that momentum by which as we said when we made.

Neil: The service <unk> acquisition. This is a mid teens plus grower.

Neil: And my expectation is this year is the building blocks by which the subsequent years really define that sustainable mid teens growth or above with service packs.

Neil: Yeah.

Kristian: So, in conclusion, PTC has a strong portfolio and strategy and a great team of people with deep expertise and strong customer relations. We're focused on disciplined and consistent execution to ensure we deliver on the value creation opportunities we have ahead of us. With that, I'd like to turn the call over to the operator to begin the Q&A. At this time, I would like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. Please limit yourself to one question only.

Speaker Change: Perfect really appreciate the color look forward to the analyst day.

Speaker Change: Your next question comes from the line of Yung Kim with loop capital.

Yun Kim: Your line is open.

Congrats on a solid quarter, Jim Neal and Christian or growth.

Yun Kim: Pad has been incredibly resilient <unk> longtime.

Yun Kim: How do you how do you see that playing out this year.

Can you keep growing in the double digit consistently this year and do you do you need <unk> plus to kick in to provide a tailwind for it to keep growing in the double digits.

Joshua Tilton: If you have additional questions, please return to the queue. And your first question comes from the line of Joshua Tilton with Wolf Research. Joshua, your line is open.

Speaker Change: Great question, and one of the great things with the transition with Jim as I'm far more well versed in the amazing product that we have in Korea, and like you said.

Speaker Change: Good performance from Korea, we expect that to continue this is krio on premises.

Neil: Hey guys, thanks for taking my questions; you too at the end. Yeah, thanks for the question. This is Neil.

Speaker Change: Throughout the course of this year.

Speaker Change: Given the differentiation given the strength of that product and quite frankly, Creel plus is very limited if at all in terms of impacting our credo results and the strength of it in.

Speaker Change: In the near to maybe even even the medium term like I said that SaaS journey will be a 10 plus year journey, we're already seeing the strength of creel on Prem feel like that double digit growth is sustainable Creole plus over time as the market adopts it is cherry on the top.

Neil: We haven't seen any change. It's been a sluggish sales environment for a number of years now, particularly around the approval cycles of our customers. It's just taking a lot, and it has been for multiple years. Nothing's changed worse or better since, you know, I've been here during the transition time, and currently, how we're looking at Q2. And maybe, you know, given that answer and the guidance that's kind of out there, it is implying a lot of growth, especially in the new ARRs, to come through in the second half. I guess maybe just remind us, I know you have the deferred ARR balance, but what's kind of giving you guys the confidence? in that second half and that new ARR growth, especially in the context of, Yeah, I'll start, and Kristian could add if I missed anything.

Speaker Change: Okay.

Speaker Change: If I could just sneak one in for Christian.

Speaker Change: Yes, Christian I believe this is a big a much much bigger.

Speaker Change: Deals do you expect to continue to focus on increasing contract length and remind us where we are in terms of overall contract link where that has been trending and any update on the churn rate.

Speaker Change: Yes.

Speaker Change: Thanks for the question.

Speaker Change: Churn rate continues to be low and steady so.

Speaker Change: Let's just start with that one.

And yes, we will continue to.

Speaker Change: Try and move.

Speaker Change: Contracts to longer term contracts, which we believe is beneficial for our customers as well as actually for PTC. So we will continue to try and move in that direction.

Neil: First of all, looking at the pipeline of opportunities, I feel confident about the number and the size of the deals, the criticality of the customers, and the importance of the customers that we're working with hand in hand to get to a conclusion to move them down this digital transformation journey. And so when we look at that, that pipeline is interesting to us in a manner that gives us confidence around the guidance that we gave you that we are now targeting. And so that's an element of it.

Speaker Change: And then lastly, I think your question was around the average.

Speaker Change: Contract lengths, which as it stands right now still hovers around a two year term.

Speaker Change: So much.

Speaker Change: And the next question comes from the line of Matt Hedberg with RBC capital markets.

Neil: Again, to be clear, this doesn't assume that anything changes in the selling environment from now to the end of the year. There's just an element of pipeline and a seasonality that we've always had, quite frankly, in the second half where these types of deals we've historically been able to close out, and our intent is to do the same this year.

Matthew George Hedberg: Your line is now open.

Matthew George Hedberg: Great. Thanks, guys and Jim Congrats on the run as well Aneel officially taking over.

Matthew George Hedberg: The 14th you said so great Ron.

Matthew George Hedberg: Jim and we're looking forward to this next journey here.

Matthew George Hedberg: I guess I had a question Neil you mentioned you know theres been a lot of focus on <unk>, plus <unk> plus and you had some comments in your prepared remarks on the SaaS transition I don't think a lot of people feel like this is really you know what.

Matthew George Hedberg: What we typically seen assessed transition because I think youre not trying to like push customers there but.

Clark Jeffries: Thank you. Your next question comes from the line of Clark Jeffries with Piper. Clark, your line is open.

Matthew George Hedberg: To move to the SaaS variance, but just maybe how do you kind of philosophically think about that and other things perhaps that you can do to sort of show the functionality, that's where that's where it's going in the plus variance and I don't know, maybe theres, some pricing or incentives that could could drive that behavior, but it feels like it's been accretive thing for you and beneficial to the <unk>.

Neil: Hello, thank you for taking the question. It's great to see the resilience of the business. Neil, I was hoping you could expand on your comments around the timeline for the cross-sell for ServiceMax. It seems like you've made some early progress in aligning the go-to-market, but could you help us think through what that success in cross-sell looks like in Fiscal 24, what it looks like in Fiscal 25, and what's a reasonable timeline for ServiceMax to reach its stride in terms of that? Reaching the existing customer base. Yeah, Clark, great question. Thank you for asking that question.

Matthew George Hedberg: As well.

Speaker Change: Yes, great question Matt.

Speaker Change: Thanks for asking it it's important to us.

Speaker Change: Let me just make sure I reiterate this we have a view I have a view that was consistent with Jim's view that the industry will go to SaaS.

Speaker Change: As an inevitability.

Neil: Look, the first year, since clearly I'm very familiar with ServiceMax in my background, the first year was integration work and really getting to know the ways in which the ServiceMax team could interact in a precise way with the PDC team. We did that, we accomplished that, we had early success, which created momentum. Secondly, after we saw that, we implemented a far more constructive and direct selling process by which the ServiceMax sellers are now very much tied into how the PTC sellers are going forward in this fiscal year. And what that's caused is two things.

Speaker Change: As I said, we believe it's going to be in my estimation, a 10 plus year journey.

Speaker Change: It could be wrong, it could move faster.

Speaker Change: Could take a little bit longer, but the way in which we're thinking about it here with already some momentum build particularly in windshield, plus cryo plus we launched a couple of quarters ago.

Speaker Change: We're building with customers already the resilience the scalability, the repeatability of a SaaS offering by which when other customers of similar complexity or size or segments are ready to take it on we have build the strength and the capabilities to do that and so.

Neil: The customer base is now understanding the PTC broader value proposition of the digital thread and why ServiceMax is so critical to be part of that. Number one, so that's creating a level of interest, engagement, and, quite frankly, momentum that we've already been experiencing. And two, the sellers now have a familiarity with speaking the language that's necessary for ServiceMax to begin to scale. I foresee this year to be a busy time period, given the sales cycles of ServiceMax. These are all new implementations, for the most part, even if they are already existing PTC customers. That takes a bit of time.

Speaker Change: The way in which we're doing is we're not taking any foot off the accelerator in terms of our focus energy investment into our plus strategy, but we don't want to force customers different than others out there, but it's very important philosophically as you asked for us to have a way in which we work with our customers.

Speaker Change: As they need to migrate their value prop to move from an on Prem system to a SaaS offering we will be their hand in hand to do that at our ultimate belief is that will reward us in a meaningful way when the dam breaks we might we will not only get the conversion of our existing on Prem customers.

Neil: And I see this year as building that momentum by which, as we said when we made the ServiceMax acquisition, this is a mid-teens plus grower. And my expectation is that this year will be the building blocks by which the subsequent years really define sustainable mid-teens growth or above with ServiceMax. Perfect. I really appreciate the color.

Suffering but have a differentiated offer for those and other competitive environments that might want to move to the best in class solution at PTC.

Speaker Change: Got it thanks, a lot super helpful.

Speaker Change: Okay.

And your next question comes from the line of Adam Borg with Stifel.

Adam Charles Borg: And Adam Your line is now open.

Adam Charles Borg: Awesome. Thanks, so much for taking the questions.

Neil: I look forward to the anniversary. Your next question comes from the line of Yun Kim with Loop Capital, and Yun, your line is open. Thank you. Congratulations on a solid quarter, Jim, Neil, and Kristian. Our growth, CREO, has been incredibly resilient for a long time. How do you see that playing out this year?

Adam Charles Borg: Maybe for Neil.

Adam Charles Borg: It's pretty interesting when you talk in your script about focusing our resources towards the highest priority areas.

Adam Charles Borg: A lot of focus obviously on P. L N. The upsell opportunities in cat, but maybe talk a little bit about Iot and they are and how youre thinking about those opportunities and then I have a quick.

Adam Charles Borg: Oh.

Speaker Change: Yeah, very important question and to be clear.

Speaker Change: I'm going to be very consistent around making sure across the broad portfolio of capabilities, we have to make sure with all of you we focus in not only internally, but as we report our messaging to you around the largest value creation from adult aggregate dollar perspective, those priorities, which I named around.

Neil: Can it keep growing in the double digits consistently this year? And do you need CREO Plus to kick in to provide a tailwind for it to keep growing in the double digits? Great question.

Neil: And one of the great things with the transistor and Jim is that I'm far more well-versed in the amazing product that we have in Creo. And, like you said, good performance from Creo. We expect that to continue. This is Creo on-premises, and Creo throughout the course of this year, given the differentiation and the strength of that product. And quite frankly, Creo Plus is very limited, if at all, in terms of impacting our Creo results and its strength in the near to maybe even the medium term.

Speaker Change: P. L M S. L M with service Smacks a L M <unk>.

The cat piece of it as well as how we transition our customers to SaaS that doesn't mean Iot a our server just six arbor taxed flex GLM arent important I have and we have leaders they're capable leaders working through that many of which are important to our digital thread many of which are.

Speaker Change: Those products are important to industrial manufacturers going through digital transformation.

Kristian: Like I said, that SaaS journey will be a 10-plus year journey. We're already seeing the strength of Creo on-prem, and feel like that double-digit growth is sustainable. Creo Plus, over time, as the market adopts it, is the cherry on top. If I could just sneak one in for Kristian, you know, Kristian, I believe this is a big, much, much bigger year for renewals. Do you expect to continue to focus on increasing contract length and remind us where we are in terms of overall contract length, where that has been trending, and any update on the churn rate? Yeah, hey, Yun.

Speaker Change: And what I meant by prioritization and focus is as a general way in which the company has done for many years now during the planning process I'm, making sure with the team here that like I said, we put more wood behind the arrows that create the highest value creation opportunities and make sure.

Speaker Change: Those that might not have as strong of the outlook or have a different investment profile. We look at that with a time horizon and make the right concert concise decision to prioritize where we put the investment dollars and where we made.

Speaker Change: One a deep prioritize a few of those based on the outlook of that business right. Now we have a very broad portfolio I feel good about it but we've been doing it consistently over the last few years is making sure or placing the next incremental dollar in the highest value creation opportunities going forward.

Kristian: Thanks for the question. You know, my turn rate continues to be low and steady. So let's just start with that one. And yes, we will continue to try and move contracts to longer-term contracts, which we believe is beneficial for our customers as well as for PPC. So we'll continue to try and move in that direction. And then lastly, I think your question was around the average contract length, which, as it stands right now, still hovers around a two-year term. And your next question comes from the line of Matt Hedberg with RBC Capital Markets. Matt, your line is now open.

Incredibly helpful. I really appreciate that maybe just a quick follow up for Christian just on the model I think the guide implies on Opex or 200 basis point increase in Opex spend relative to the guidance you talked about 90 days to 90 days ago, maybe talk a little bit more about what are the areas that you know.

Christian: Looking to drive increased and Beth thanks, so much.

Christian: Yeah.

Christian: Yeah, Hey, Adam it's Chris.

Christian: I think that our.

Chris: Uh huh.

Chris: Opex guidance for the year.

Chris: Is pretty well in la is remains unchanged from really what we would have said.

Chris: 90 days ago.

In terms of.

Chris: In terms of areas, where we're investing.

Matthew George Hedberg: Great. Thanks, guys. And Jim, congrats on the run as well.

Chris: Incrementally this year, it's what we've what we've been talking about there is a L.

Neil: And Neil, officially taking over on, I think, the 14th, you said. So, great run, Jim and Neil, looking forward to this next journey here. I guess I have a question, Neil. You mentioned, you know, there's been a lot of focus on Creo Plus and Windchill Plus, and you had some comments in your prepared remarks on the SaaS transition. But I don't think a lot of people feel like this is really, you know, like what we typically see in a SaaS transition, because I think you're not trying to push customers there. But to move to the SaaS variants, but just maybe, how do you kind of philosophically think about that? And are there things perhaps that you can do, you know, to sort of show the functionality? That's where it's going in the Plus variants. And, you know, I don't know, maybe there's some pricing or incentives that could drive that behavior, but it feels like it's a creative thing for you and beneficial to the customers as well. Great question, Matt.

Chris: In particular, there are some investments into SaaS, which includes Vinci plus includes REO plus actually includes some atlas.

Those are areas, where we're we've got incremental investment going this year, but in terms of change to the investment.

Speaker Change: File from last quarter, I'm, not sure I'm tracking with you.

Speaker Change: We can talk more offline. Thanks, so much.

Speaker Change: Yes.

Yeah.

Speaker Change: And your next question comes from the line of Joe The link with Baird.

Joe: Your line is open.

Joe: Great. Thanks for taking my question and also wanted to extend my best wishes to Jim.

Joe: Another one on just maybe more recent performance so.

Neil: Thanks for asking it. It's important to us. Let me just make sure I reiterate this. We have a view, I have a view, that is consistent with Jim's view, that the industry will go to SaaS. That's an inevitability.

Joe: <unk> was a good quarter for new <unk> added it finished above guidance I think you grew that flying 20% year on year.

Joe: Anything to call out just in terms of what drove the upside in the <unk> plan and then maybe looking into <unk>.

Neil: As I said, we believe it's going to be, in my estimation, a 10 plus year journey. But I could be wrong. It could move faster, it could take a little bit longer. But the way in which we're thinking about it here, with already some momentum built, particularly in Windchill Plus and Creo Plus, which we launched a couple quarters ago, we're building with customers the resilience, the scalability, the repeatability of a SaaS offering so that when other customers of similar complexity or size or segments are ready to take it on, we have built the strength and the capabilities to do that. And so the way in which we're doing it is we're not taking any foot off the accelerator in terms of our focus on energy investment into our plus strategy. Bye.

Joe: Any discrete factors that would explain kind of a year over year decline in new air are added or maybe relatedly is deferred a RR factoring any more or less and the outlook today.

Joe: Yeah, Hey, it's Christian Thanks, It's a good question so.

Christian: Again, I think Q1 <unk>.

Christian: Again, despite a challenging environment I think we executed well.

Christian: Well I think that across geographies across product segments, hopefully that show through in our results as far as the full year is concerned again, we are.

Christian: Maintaining our full year guidance.

As we start looking at Q2.

Neil: We don't wanna force customers, unlike others out there, but it's very important philosophically, as you asked us, to have a way in which we work with our customers as they need to migrate their value proposition to move from an on-premise system to a SaaS offering. We will be there hand-in-hand to do that. And our ultimate belief is that this will reward us in a meaningful way. When the dam breaks, we will not only get the conversion for existing on-prem customers to the SaaS offering but have a differentiated offer for those in other competitive environments that might want to move to the best-in-class solution at PD Safe. Got it. Thanks a lot.

Christian: Here I think what we're just trying to be prudent on the.

Christian: In the immediate term outlook.

Christian: But as a reminder, I guess for everybody as it gets back to the.

Christian: There is a R. R and then theres cash flow and on the cash flow side of things, whether it could be more volatility on a or on the cash flow side of things both from a.

Christian: Quarterly and annual guidance perspective, I think we feel very good about the above that guidance, but otherwise I think seasonality is.

Christian: You know kind of in line with last year from a from an IRR perspective, taking into account the incremental deferred we've talked about ad nauseum.

Speaker Change: Okay, great. Thank you.

Adam Charles Borg: Super helpful. And your next question comes from the line of Adam Borg with Stifel. And Adam, your line is now open. Awesome. Thanks so much for taking the questions.

Speaker Change: And your next question comes from the line of Tyler Radke with Citi and Tyler Your line is now open.

Speaker Change: Okay.

Tyler Radke: Thanks, So much for the question and congrats to you Neil and Jim look forward to the next journey here.

Neil: Maybe for Neil, you know, it's pretty interesting when you talk in your script about, you know, focusing resources towards the highest priority areas. A lot of focus, obviously, on PLM, the upsell opportunities in CAD. Maybe talk a little bit about IoT and AR and how you're thinking about those opportunities. I have a quick follow-up. Yeah, very important question.

Tyler Radke: You talked about how are you.

Tyler Radke: You made a number of observations across the product portfolio.

Tyler Radke: Your time here one of the things that stood out to me was on your comments on the SaaS transition.

Tyler Radke: Talking about it as a 10 year journey.

Neil: And to be clear, I'm going to be very consistent around making sure across the broad portfolio of capabilities we have, to make sure with all of you, we focus not only internally but as we report our messaging to you around the largest value creation from an aggregate dollar perspective, those priorities, which I named around PLM, SLM with ServiceMax, ALM, the CAD piece of it, as well as how we transition our customers to SaaS. That doesn't mean IoT, AR, server logistics, Arbor text, and Plex VLM aren't important. And we have leaders there, capable leaders, working through that, many of which are important to our digital thread, many of those products are important to industrial manufacturers going through digital transformation.

Tyler Radke: In the past PTC had had talked about it maybe a little bit more medium term than that so I'm just wondering and maybe the question is for Kristian is there any impacts we should think about on the medium or long term financial targets as it relates to that and then Conversely.

Kristian: What are you seeing on the on Prem side, maybe that surprised you to the upside that that's giving you that confidence that it's about a little bit of a longer timeframe. Thank you.

Speaker Change: Hey, Tyler.

Speaker Change: So let me let me try and then Christian can add to this.

Speaker Change: The two actually are are related your two questions and you know as you know the on Prem business is delivering really solid growth.

Speaker Change: And one of the reasons why we talk about Pls Peel out of expansion.

Christian: We are still in the early innings of P. L. M. As I mentioned in the prepared remarks in the early innings of being the system of record for product data across our customer base. It is happening in many cases, but there is as far as the eye can see and all the travel as Jim and I have been doing meet with customers. It is.

Neil: And what I meant by prioritization and focus is, as a general way in which the company has done for many years now, during the planning process, I'm making sure with the team here that, like I said, we put more wood behind the arrows that create the highest value creation opportunities and make sure those that might not have as strong of an outlook or have a different investment profile, we look at that with a time horizon and make the right concise And where we may want to deprioritize a few of those based on the outlook of that business. Right now, we have a very broad portfolio; I feel good about it. But we've been doing it consistently over the last few years, making sure we're placing the next incremental dollar in the highest value creation opportunities going forward. Incredibly helpful.

Christian: Now happening and so and this is based on our on premise windchill systems. So that gives the confidence as we think through structuring scaling, enabling our sellers the marketing around it to make wind chill that system of record for product data that we're seeing already some of our customers.

Christian: That's why I have the confidence around really putting the wood behind the arrow around that initiative combined with the <unk> initiative that has a very interesting growth factor that we talked about that is predominantly on premise. It will move to cloud over time, but those two growth vectors are and that would be on those.

Kristian: I really appreciate that. Maybe just a quick follow-up for Kristian on the model. I think the guidance implies a 200 basis point increase in OPEX spend relative to the guidance we talked about 90 days ago. Maybe talk a little bit more about what are the areas that you're looking to drive increased investment. Thanks so much. Yeah, Adam. It's Kristian.

Two arrows or on premise to be Crystal clear and then as a prior question a S. R. Creel on premise business.

Christian: Is solid and rocket enrolling so those three things combined lastly, with the service Smacks Cross sell which is a SaaS product as you know Tyler that.

Kristian: No, I mean, I think that our... OPEC's guidance for the year is pretty well unchanged from really what we would have said 90 days ago, in terms of... You know, in terms of areas where we're investing. Incrementally, this year, that's what we've been talking about. There's ALM in particular, there's some investments into SAS, which includes VenturePlus, includes CreoPlus, actually includes some Atlas.

Christian: Those give the confidence around the continuation and the types of guidance that we put out in the mid and long term that.

Christian: That being said for the mid teens in the.

Christian: Mid term to long term guidance. There is an element of SaaS starting to transition into that <unk> growth rate in the mid to long term my point around the 10 year is the industry and all of our customers will take in aggregate that long, but we already are taking windshield.

Christian: Some creole plus customers along in the journey and that should create in the beta and long term and maybe we see the dam break earlier and it creates faster, but our estimate is to be tempered here and to work with customers haven't had to get that upside on the SaaS transition.

Kristian: Those are areas where we've got incremental investment going this year. But in terms of change to the investment profile from last quarter, I'm not sure I'm tracking. We can talk more offline.

Appreciate anything to add.

Speaker Change: I think that was.

Joe Vruwink: Thanks. And your next question comes from the line of Joe Vruwink with FAIR. Joe, your line is open.

Speaker Change: Spectacular.

Speaker Change: That's the first time Christian complementary thanks, Chris.

Speaker Change: Yeah.

Chris: But thank you so just to clarify no changes to the medium or long term target sounds like no, but I just wanted to clarify.

Kristian: Great, thanks for taking my question and also wanted to extend my best wishes to Jim. You know, another one on just maybe a more recent performance. So 1Q was a good quarter for new ARR added. You finished above guidance. I think you grew that line 20% year on year. Anything to call out just in terms of what drove the upside in the 1Q plan, and then maybe looking to 2Q, any discrete factors that would explain kind of a year-over-year decline in new ARR added, or maybe relatedly, is deferred ARR factoring any more or less in the outlook today? Yeah, hey, it's Kristian.

Chris: No.

Awesome. Thanks, so much.

Speaker Change: And your next question correct.

Speaker Change: [laughter].

Our next question comes from the line of Matt <unk> with Mizuho Securities.

Matthew George Hedberg: Your line is open.

Matthew George Hedberg: Alright, thanks, very much I'll add my congratulations to both Jim and Neil.

Matthew George Hedberg: So maybe just some partnership.

Matthew George Hedberg: Clearly a lot happening with Anthos right now I'm just curious.

Matthew George Hedberg: If you have a view on how this.

Matthew George Hedberg: Proposed acquisition by Synopsys might affect your partnership that maybe if you could remind us sort of materiality or the strategic importance of that partnership.

Kristian: Thanks. It's a good question. So, you know, again, I think Q1, again, despite a challenging environment, I think we executed well. I think that across geographies, across product segments, you know, hopefully that showed through in our results. As far as the full year is concerned, again, we are, you know, maintaining our full year guidance. As we start looking at, you know, Q2, here, I think we're just trying to be prudent on the, you know, immediate term outlook.

Matthew George Hedberg: Yes.

Speaker Change: Look <unk> has been a good partner of ours.

Speaker Change: For many years and will continue to be a good partner.

They are a part of how we talk about and have a value prop around cryo and the added stimulation capabilities and we help them similarly, right around what they're doing on simulation with us So it's a very <unk>.

Good partnership for both sides and critical to both sides to a certain extent to be clear too. This is actually if the deal goes through right I'm not a regulator. So I can't speculate on that but if the deal goes through and Synopsys is the eventual owner of ancestors. The great thing for US is there's zero overlap that we have.

Kristian: But as a reminder, I guess for, you know, everybody as it gets back to, you know, there's ARR and then there's cash flow. And on the cash flow side of things, whether there could be more volatility in ARR, on the cash flow side of things, both from a quarterly and annual guidance perspective, I think we feel very good about that guidance. But otherwise, I think seasonality is, you know, kind of in line with last year from an ARR perspective, taking into account the incremental delay we've talked about at NASA. Okay, great. Thank you. And your next question comes from the line of Tyler Radke with Citi. And Tyler, your line is now open.

Speaker Change: With Synopsys, which might overtime I don't know, yet but might over time create opportunity for us.

Speaker Change: Excellent and then maybe if I could just so both are off just how Europe business in China result, during the quarter and if you've seen any incremental impacts from any regulatory restrictions that you.

Speaker Change: We haven't.

Speaker Change: We haven't seen trying to be a drag on us.

Speaker Change: Okay.

Speaker Change: Thanks, Greg.

Tyler Radke: Thanks so much for the question and congrats to you, Neil and Jim. I look forward to the next journey here. Neil, you talked about how, you know, you made a number of observations across the product portfolio in your time here. One of the things that stood out to me was your comments on the SaaS transition, kind of talking about it as a 10-year journey. I think in the past, PTC talked about it maybe a little bit more medium-term than that, so I'm just wondering, and maybe the question's for Kristian, is there any impact we should think about on the medium or long-term financial targets as it relates to that? And then, conversely, what are you seeing on the on-prem side maybe that surprised you to the upside that that's giving you that confidence that it' Thank you. Hey Tyler.

Speaker Change: Okay.

Speaker Change: And your next question comes from the line of Steven Tusa with Jpmorgan and even your line is now open.

Charles Stephen Tusa: Hey, guys good evening.

Charles Stephen Tusa: Hey, Steve It's Chris.

Speaker Change: Christian didn't come across.

As the managing uptime, but that was a that was a heck of a comment to the new to new boss.

Smart move.

Speaker Change: Say it might be the first time I have complemented anybody.

Speaker Change: [laughter] and I would second that.

Speaker Change: [laughter].

Speaker Change: I think just going back to the question on costs I think in last quarter's presentation. You said that non operating non-GAAP operating would be up 6% to seven I think youre, saying now.

Speaker Change: Seven to eight or something like that I think that's what the prior question was referring to maybe that's forex or something like that.

Speaker Change: I think I think that was probably the source of that question just curious as well on that.

Neil: So let me try, and then Kristian could add to this. The two questions are actually related. And as you know, the on-prem business is delivering really solid growth. And one of the reasons why we talk about PLM expansion is that we are still in the early innings of PLM, as I mentioned in the prepared remarks, in the early innings of being the system of record for product data across our customer base. This is happening in many cases.

Speaker Change: Yeah that would be that would be FX related yeah. Okay that makes sense and then just on your IRR kind of leverage down to free cash.

Speaker Change: You beat <unk>.

Speaker Change: This quarter by a little you raise that you would be cash by $3 million. It was like a 20% to 25% drop through on that.

Speaker Change: B.

Speaker Change: Is there anything to that math.

Speaker Change: You guys have said with upside IRR youll, probably invest some of that away. So we should just keep an eye on your cash guidance.

Neil: But there is, as far as the eye can see, in all the travels Jim and I have been doing, meeting with customers, this is now happening. And so, and this is based on our on-premise windshield system. So that gives us confidence as we think through structuring, scaling, enabling our sellers, and the marketing around it to make Windchill that system of record for product data that we're seeing in already some of our customers. That's why I have the confidence around really putting the wood beyond the arrow around that initiative, combined with the ALM initiative that has a very interesting growth factor that we talked about that is predominantly on-premise. It will move to cloud over time. But those two growth factors are, and the wood behind those two arrows is on-premise to be crystal clear. And then, as a prior question asked, is Creel's on-premise business solid and rocking and rolling?

Speaker Change: But is is there anything to math like that where if you get a little bit of that extra IRR that like it's kind of hard to invest in a way that you will get some upside drop through on that ultimately.

Speaker Change: Or am I, taking too much really no no that's a great question and so.

Speaker Change: I just.

Speaker Change: All right.

Speaker Change: I think that the thing that you need to remember where they are and cash flow.

Speaker Change: Is we'll call it a R R equates to invoicing and.

Speaker Change: And then cash flow with lace to collections and payments and so you know our standard terms are 30 days and you know depending on the customer our average terms are definitely longer than definitely longer than 30 days.

Speaker Change: But let's just work with 30 days, which means that any incremental <unk> that we get in a quarter.

That comes in the last month of the quarter actually isn't impacting that quarter's cash collections and therefore that quarter's cash flows that all goes to the subsequent quarter. So you'd have to just remember that time lag when you're when you're thinking about it.

Neil: So those three things combined, lastly, with the Service Max Crossout, which is a SAS product, as you know, Tyler, those give the confidence around the continuation and the types of guidance that we put out in the mid and long term. That being said, for the mid-teens and the mid-term to long-term ARR guidance, there is an element of SAS starting to transition into that ARR growth rate in the mid to long term. My point around 10 years is that the industry and all our customers will take in aggregate that long, but we are eager to take Windchill Plus and some Creo Plus customers along the journey, and that should accrete in the mid and long term. And maybe we see the dam break earlier, and it accretes faster, but our estimate is to be tempered here and to work with customers hand in hand to get that upside on the SAS transition. Thank you for sharing that. I think that was... Thank you. That's the first time Kristian has complimented me.

Makes sense, yes, yes that.

Speaker Change: Makes a ton of sense one last one for you on cash.

Last quarter, you said, 55% of the year will come in the first half earnings this quarter. Its now 58, so a little more front end loaded.

Speaker Change: Again, and anything going on there I mean, it would I guess make us feel feel we all feel better about the year, it's a little more front end loaded but.

Anything going on there from a timing perspective that stands out.

Speaker Change: Yeah, I feel better when it's more front end loaded Tuesday.

And I think what we said if we're going to be Super technical about it is more than 55% now we're just kind of.

Speaker Change: And then on the math and saying, it's going to be more like 58%, but otherwise.

Speaker Change: I think we had.

Speaker Change: Great.

Speaker Change:

Great collections performance here.

Neil: Thank you, Kristian. Thank you. And so just to clarify, no changes to the medium or long-term targets? Sounds like no, but I just wanted to clarify. Now. Okay. Awesome, thanks so much. And your next question, and Matt Shimao.

Speaker Change: Here in Q1, and the outlook for Q2 was solid as well. So I think we feel pretty good about the range for Q2, and obviously the outlook for the year great. Thanks, a lot appreciate the color.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: And your next question comes from the line of Jay.

Jay: Hey, Richard with Griffin Securities.

Neil: Thank you. Thank you. Your next question comes from Matt Broom with Mizuho Securities. Matt, your line is open.

Jay: Your line is now open.

Jay: Thank you.

Jay: You've noted on the call your closed loop lifecycle strategy and your cross selling structure and process. The question I have is about customers' receptivity to cross selling and what I mean is do you see any correlation between the likelihood.

Neil: All right, thanks very much. I'll add my congratulations to both Jim and Neil. So, maybe just on partnerships, there's clearly a lot going on with ANSYS right now. I'm just curious if you have a view on how a proposed acquisition by Synopsys might affect your partnership there, and maybe you could remind us the sort of materiality or the strategic importance of that partnership. Yeah, look, ANSYS has been a good partner of ours for many years and will continue to be a good partner. You know, they are part of how we talk about and have a value proposition around CREO and the added simulation capabilities. And we help them similarly, right, around what they're doing in simulation with ours. So it's a very good partnership for both sides and critical to both sides, to a certain extent.

Richard: Cross selling and the size of the customer or the customers products and or perhaps the end market is there anything that would make a customer in industry X or with product y.

More receptive to your multi solution cross selling approach.

And then perhaps another customer might be then a follow up.

Speaker Change: Yeah. Thanks. So thanks for the question Jay you know in terms of service back cross sell.

A key factor as having product companies OEM manufacturers, having long lifecycle assets in the field and you know if you want to double click.

Speaker Change: Critical assets.

Neil: To be clear, too, this is actually if the deal goes through, right? I'm not a regulator, so I can't speculate on that. But if the deal goes through, and Synopsys is the eventual owner of ANSYS, the great thing for us is there's zero overlap that we have with Synopsys, which might, over time, I don't know yet, but might over time create an opportunity. And then maybe I could also ask just how your business in China has evolved during the quarter and if you've seen any incremental impacts from any regulatory restrictions. Thanks. You know, we haven't seen Try To Be A Drag on it.

Speaker Change: Within life Sciences electronics and high Tech the industrial manufacturing space the ones that are in the field for a long time that product companies are now needing service revenue to offset any declines or lack of new product innovation to make sure that they're getting a consistent durable revenue stream themselves. So that's.

That is a consistent correlation that we're seeing.

Speaker Change:

Speaker Change: From a customer lens to is when a customer has windchill one thing that's really interesting is this past quarter we won.

Speaker Change: So very large industrial manufacturing win at service Max.

Neil: OK. Thanks very much. And your next question comes from the line of Stephen Tusa with J.P. Morgan. Stephen, your line is now open. Hey guys, good evening. Kristian didn't come across to me as the managing up type, but that was a heck of a comment to the new boss. Smart move. I was going to say, it might be the first time I've complimented anybody.

Speaker Change: Over a seven digit plus deal that quite frankly, I was trying to win for five straight years at service backs on our own unsuccessfully.

Speaker Change: We will take those deal down because the customer has creon windchill and they over time as they influence servicemaster, one the asset field record the system of record of the asset they have to flow back to the system. So the combined solution Jain of.

Speaker Change: And that correlation point of a customer of windchill with long lifecycle assets that they produce is a really nice makeup which brings that math of three under service backfill stores equated with 3000 similar likeminded.

Kristian: And I might second that. I think just going back to the question on costs, I think in last quarter's presentation you said non-operating, kind of non-gap operating, would be up six to seven. I think you're saying now seven to eight or something like that. I think that's what the prior question was referring to. Maybe that's 4X or something like that. I think that was probably the source of that question. Just curious as well about that.

Speaker Change: PTC customers last name quickly on a L M, which is actually a big cross sell for us as well.

Speaker Change: That's that's interesting to us is on the other side of it. So as we mentioned I think last earnings call. We've been seeing cone beam are as a tip of the sphere, where we're particularly in automotive automotive suppliers, where now we're getting and the conversations we're showing them the codebook could mirror value prop.

Kristian: Yeah, that would be FX related. Yeah, okay, that makes sense. And then just on your ARR kind of leverage down to free cash, you beat ARR this quarter by a little. You raised the, you know, you beat cash by 3 million bucks. It was like a 20 to 25% drop through on that ARR beat.

Speaker Change: We also have our piceance system that might not be a PTC how can the two work together with hardware configuration management, where software configuration management code Bieber should we actually look at PTC for the combined offering that's interesting to us we're starting to see it I wouldn't call it.

Kristian: Is there anything to that math? I know you guys have said with the upside ARR, you'll probably invest some of that away, so we should just keep an eye on your cash guidance. But is there anything to math like that where if you get a little bit of that extra ARR, it's kind of hard to invest it away, but you will get some upside drop through on that ultimately? Well, am I nitpicking too much?

Speaker Change: A trend yet, but that's another opportunity that might have a correlation that we're starting to see some early signs of the jet.

Speaker Change: Okay also over the last two or more years, its been demonstrable that cryo and windshield have gained share as you know.

Speaker Change: And I think there were some describable reasons for that.

Speaker Change: But over the course of fiscal of calendar 'twenty three it did look as though CAD market shares we're beginning to stabilize and I'm wondering if you were beginning to see any evolutions or new dynamics in either a cat or P. L M, suggesting that customer are.

Kristian: Really, no, no, it's a great question. And so let's just... I'll-I'll-I'll- I think the thing that you need to remember with ARR and cash flow is, we'll call it ARR equates to invoicing, and then cash flow relates to collections and payments. And so, you know, our standard terms are 30 days, and, you know, depending on the customer, our average terms are definitely longer than 30 days. But let's just work with 30 days, which means that any incremental ARR that we get in a quarter that comes in the last month of the quarter actually isn't impacting that quarter's cash collections, and therefore that quarter's cash flows. That all goes to the subsequent quarter.

Speaker Change: <unk>, our selection criteria or anything of that kind of might be changing from what they've been over the past number of years.

Speaker Change: It might affect your query or windshield momentum.

Speaker Change: Yeah, I'm going to I'll.

Speaker Change: Take the windshield piece and maybe I could ask Jim as I'm getting deeper into the Creole piece to comment on that but what are the interesting things, we're seeing with our <unk>.

Prioritization of putting would be on more of the arrow in the appeal of expansion category, which is predominantly windshields you know Jay.

Speaker Change: Is when customers are going through an ERP migration, particularly U S. P. S for ohana, we're seeing that as a really interesting point, where the customer is looking at what workflows belong in an ERP system versus MBS versus.

Kristian: So you have to just remember that time lag when you're thinking. That makes a ton of sense. One last one for you on cash. Last quarter you said 55% of the year would come in the first half. I think this quarter it's now 58.

Speaker Change: A P L M system, and we're actually feeling advantage when that introspection is happening to have more functionality being put with an appeal on system, which makes windchill far more important in the transition process. So that's that's a theme we're starting to see number one and number two again to reiterate the the idea of it.

Kristian: So a little more front-end loaded. Again, anything going on there? I mean, it would, I guess, make us feel, we all feel, I guess, better about the year when it's a little more front-end loaded. But anything going on there from a timing perspective that stands out? I feel better when it's more front-end loaded, too, Steve. And I think what we said, if we were going to be super technical about it, is more than 55%. And now we're just kind of... owning it in on the map and saying it's going to be more like 58 percent, but you know, otherwise, I think we had a great collections performance here in Q1, and the outlook for Q2 is solid as well, so I think we feel pretty good about the range for Q2, and obviously the outlook for the year. Thanks a lot. I appreciate the color.

Speaker Change: Having a broad portfolio not only on the SLM side a L. M side I believe we're starting to have the customer conversations we're having a windshield pls system becomes more critical to have a common data flow over time to the threat and we'll see whether that amount the competitive license, but we see that as a.

Speaker Change: <unk> of some themes that are interesting for us for windchill expansion, Jim do you want to talk about Korea, maybe I could add.

Jim: Jay I think your point is that PTC has had good double digit growth steady as she goes for some years now with Korea and some of the competitors have lost momentum and then seemingly gain some of it back.

Jay Vleeschhouwer: And your next question comes from the line of Jay Vleeschhouwer with Griffin Security. Jay, your line is now open. Thank you.

Jim: You know I think you know we have one European competitor in particular, whose customers aren't that happy and that dynamic serves us very well now it looks like they have some momentum and I think you remember too they put through some fairly nasty price increases, which I think might cover up a little bit what's really happening because the price increase.

Neil: You noted on the call your closed-loop lifecycle strategy and your cross-selling structure and process. The question I have is about customers' receptivity to cross-selling. And what I mean is, do you see any correlation between the likelihood of cross-selling and the size of the customer or the customer's products or, perhaps, the end market? Is there anything that would make a customer in industry X or with product Y more receptive to your multi-solution cross-selling approach than perhaps another customer might be?

Jim: This might give them some short term growth, but actually exacerbate the problem.

Jim: Customers are frustrated about.

Jim: So I don't know I feel like.

Jim: You know our business has been steady and and we think as Neil said clearly before we will continue to be steady.

Jim: <unk>, plus maybe offering a bit of a tailwind over time.

Jim: You know I think that we're in a position to take share with grill and it takes year on the other end of the customer base with unchanged.

Neil: Then a follow-up. Yeah, thanks for the question, Jay. You know, in terms of ServiceMax CrossSell, a key factor is having product companies, OEM manufacturers, having long-lifecycle assets in the field. And, you know, if you want to double-click on critical assets, you know, within life sciences, electronics, and high tech, the industrial manufacturing space, ones that have been in the field for a long time, product companies are now needing service revenue to offset any declines or lack of new product So that's, that's a consistent correlation that we're seeing, you know, from a customer lens. Two is, you know, when a customer has Windchill. One thing that's really interesting is this past quarter, we won a very large industrial manufacturing win at ServiceMax over a seven-digit plus deal that, quite frankly, I was trying to win for five straight years at ServiceMax on our own, unsuccessfully. And we were able to take this deal down because the customer has Creo and Windchill. And they, over time, as they implement ServiceMax, want the asset field record, the system of record of the asset, to actually flow back to their VLM system.

Jim: And so I like our prospects.

Speaker Change: Very good thank you.

Speaker Change: And your final question comes from the line of socket Javier with Barclays.

Javier: And second your line is now open.

Javier: Okay, Great guys, Hey, thanks for thanks for squeezing me in here I'll keep it to one question just first off.

Javier: Congrats Neal on on the upcoming appointment and Jim tip My cap to you for for all the years that the PTC in the industry.

Speaker Change: The question I want to focus on here, maybe for Christian and Neal is just.

Speaker Change: Just the a L M business overall, right really spearheaded by code Beamer how.

Speaker Change: How do we can you can just maybe give some contours on roughly how big that business is from an AUR perspective.

Speaker Change: How fast it's growing roughly and.

Christian you talked about sort of a range of outcomes and sort of this AOR guide how much can code beam or sort of affect that range of outcomes because it just it just sounds like there's a lot of excitement a lot of product success. There I wanted to just put some some numbers around it to the extent we could.

Christian: Yeah, I mean, I'll start socket and good to hear your voice.

Speaker Change: You know I'll I'll, let Christian.

Speaker Change: Talk about if we do break out.

Speaker Change: From a size perspective, but it is from my perspective nowhere near the size of Korea on wind show at this current time. However, the pace of growth is extremely exciting I mean as as fast as I've seen west coast startups start growing I'm, starting to see that same level of percentage growth year.

Neil: So the combined solution Jane of, and the correlation point of a customer with Windchill, the long lifecycle assets that they produce, is a really nice makeup, which brings that math of 300 ServiceMax customers equated with 3000 similar like-minded PTC customers. Last thing quickly on ALM, which is actually a big cross out for us as well. That's interesting to us on the other side of it. So, as we mentioned, I think, on the last earnings call, we've been seeing CodeBeamer as a tip of the spear, where we're particularly in the automotive supplier, where now we're getting into the conversation as we're showing them the CodeBeamer value proposition, hey, we also have a PLM system that might not be PTC. How could the two work together with hardware configuration management and software configuration management, CodeBeamer? Should we actually look at PTC for the combined offering?

Speaker Change: Every year, we got some work to do so it's not going to be a straight up into the right line, but that being said one of the things. We've been seeing is told beamer is catching fire I think we mentioned that as a quote from last quarters call and were seeing as the adoption occurs or a POC occurs at a large automotive company that for <unk>.

Speaker Change: Sampled Jim and I were in Japan.

Speaker Change: Once they start testing out this thing goes big relatively quickly as an example, we won a very what we thought was a very large coat beamer.

Speaker Change: Not the one that we press release another one within Q4 of last year, although large European automaker.

Speaker Change: This last quarter, we got an add on order already of sizable value from that same customer. So that's leading to this excitement piece number one number two is some of these deals with code Beamer are very substantial in size right now the only of the add on orders, but like the size of the deals because.

Neil: That's interesting to us. We're starting to see it. I wouldn't call it a trend yet, but that's another opportunity that might have a correlation that we're starting to see some early signs of J. Okay. Also, over the last two or more years, it's been demonstrable that CREO and Windchill have gained share, as you know. And I think there are some describable reasons for that.

Speaker Change: The users that need software development tools like code beamer or some cases, a lot larger of a population than the mechanical engineers and so that's why it has such a what.

James E. Heppelmann: But over the course of fiscal calendar 23, it did look as though CAD market shares were beginning to stabilize. And I'm wondering if you are beginning to see any evolutions or new dynamics in either CAD or PLM suggesting that customer requirements or selection criteria or anything of that kind might be changing from what they've been over the past number of years, as it might affect your CREO or Windchill momentum. Yeah, I'm gonna, you know, I'll take the windshield piece.

Speaker Change: What we call a prioritization of the high dollar value creation opportunities, that's why elan as part of that.

Speaker Change: Could I just add it's also very strategic high ground.

Speaker Change: It's an important piece of business to win.

Speaker Change: Absolutely absolutely and I think we can talk about in terms of again, just sort of contours rough sizing because it does feel like an important sort of long term investment area.

Speaker Change: Yeah Yeah.

Speaker Change: So, let's just try rough sizing and say it. This way you know this year, we ought to pass through the $100 million Mark on.

Neil: And maybe I could ask Jim, as I'm getting deeper into the Creo piece, to comment on that. But one of the interesting things we're seeing with our prioritization of putting wood behind more of the arrow in the PLM expansion category, which is predominantly windshield, as you know, Jay, is when customers are going through an ERP migration, particularly SAP to S4 HANA, we're seeing that as a really interesting point where the customer is looking at what workflows belong in an ERP system versus MES versus a PLM system. And we're actually feeling an advantage when that introspection is happening, to have more functionality being put within a PLM system, which makes the windshield far more important in the transition process. So that's, that's a theme we're starting to see number one.

Speaker Change: Our with our a L M <unk>.

Speaker Change: Segment.

Speaker Change: To be clear, though that would be the integrity product, we previously AD plus the cone beam affronting added together.

Speaker Change: So like a total <unk> portfolio would be $100 million by the end of this year.

Speaker Change: Well that had a fair that at some point this year, yeah, and it's growing.

Speaker Change: Faster than.

Speaker Change: Faster, they're accretive to growth the overall company growth.

Speaker Change: Girl.

Speaker Change: Got it got it guys very helpful again tip my cap to both of you well done.

Speaker Change: Okay, great. Thank you. So I think that's the end of the question. So before Neal wraps it up I'd like to just take a minute to personally close out with Ptc's investor community.

Neil: And number two, again, to reiterate, the idea of having a broad portfolio, not only on the SLM side but on the ALM side. I believe we're starting to have customer conversations where having a windshield PLM system becomes more critical to have a common data flow over time through the thread. And we'll see whether that amounts to competitive places. But we see that as a continuation of some themes that are interesting for us in terms of windshield expansion. Jim, do you want to talk about Creo? Yeah, maybe I could add something.

Speaker Change: And to thank all of you for so many years of support.

Speaker Change: During my tenure I always listen carefully and took investor input seriously and it helps shape, our strategies and allowed the PTC team to really move the needle on value creation I know Neil will do the same.

Speaker Change: The transition process with Neil has been lengthy.

Platform.

Speaker Change: That is and frankly, it was even a lot of fun.

As a result, I can tell you with confidence that Neil and team are ready to go.

James E. Heppelmann: Jay, I think your point is that PPC's had good double-digit growth, steady as she goes for some years now with Creole, and some of the competitors have lost momentum and then seemingly gained some of it back. You know, I think you know we have one European competitor in particular whose customers aren't that happy, and that dynamic serves us very well. Now, it looks like they have some momentum, but I think you remember, too, they put through some fairly nasty price increases, which I think might cover up a little bit what's really happening because the price increases might give them some short-term growth but actually exacerbate the problem that the customers are frustrated about. So, I don't know.

Speaker Change: Neil has my congratulations and full support.

Speaker Change: I want to sign up in by saying, Thanks, and Goodbye, one last time, knowing I'm, leaving a strong company in good hands over to you now.

Neil: Thanks, Jim Julie and thank you everyone for joining us and for your questions. Today in the weeks ahead Christian Mike Ditullio mentioned, MAU and I will be on the road participating in investor conferences, and it would be great to keep the dialogue going.

Neil: The last week of February Christian will be at the JP Morgan Credit conference in Miami that will attend the Wolfe Conference in New York during the first week of March we'll be at the Morgan Stanley and Keybanc conferences in San Francisco that Mike. The two Wheeler will attend the virtual loop conference. During the second week of March and also we all we have two bus stores coming to visit.

James E. Heppelmann: I feel like, you know, our business has been steady, and we think, as Neil said clearly before, we'll continue to be steady. Creo Plus may be offering a bit of a tailwind over time. You know, I think that we're in a position to take share with Creo and to take share on the other end of the customer base with Danche. And so, you know, I like our CAD process. Very good. Thank you.

Neil: With us at our Boston headquarters next week.

Neil: Those visits will be hosted by Christian and me. Please reach out to JP Morgan or Piper Sandler if you're interested and on behalf of the team. Thank you again, and we look forward to engaging with you.

Neil: Yeah.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Jay Vleeschhouwer: And your final question comes from the line of Saket Kalia with Barclays. Okay, great, guys. Hey, thanks for squeezing me in here. I'll keep it to one question, just first off.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: Hum.

Saket Kalia: Congratulations, Neil, on the upcoming appointment, and Jim, tip my cap to you for all the years at PTC in the industry. The question I wanna focus on here, maybe for Kristian and Neil, is... just just the ALM business overall, right, you know, really spearheaded by CodeBeamer. How do we, can you just maybe give some contours on roughly how big that business is from an AR perspective and how fast it's growing, roughly? And Kristian, you talked about sort of the range of outcomes in this ARR guide. How much can CodeBeamer sort of affect that range of outcomes?

Speaker Change: Well. Thank you all for joining you may now disconnect.

Speaker Change: Okay.

Neil: Because it just sounds like there's a lot of excitement, and a lot of product success there. I wanted to just put some numbers around it, to the extent that we could. Yeah, I mean, I'll start Saket, Hank. Good to hear your voice. I'll let Kristian talk about if we do break out ALM from a size perspective. But it is, from my perspective, nowhere near the size of Creo and Windshow at this current time.

Neil: However, the pace of growth is extremely exciting. I mean, as fast as I've seen West Coast startups start growing, I'm starting to see that same level of percentage growth year over year. We've got some work to do, so it's not going to be straight up into the right line.

Neil: But that being said, one of the things we've been seeing is CodeBeamer catching fire. I think we mentioned that as a quote from last quarter's call. And we're seeing as adoption occurs or a POC occurs at a large automotive company, like, for example, Jim and I were in Japan. You know, once they start testing out, this thing goes big relatively quickly.

Neil: As an example, we won what we thought was a very large CodeBeamer, not the one that we press released, another one within Q4 of last year from a large European automaker. This last quarter, we got an add-on order already of sizable value from that same customer. So that's leading to this excitement piece, number one. Number two is that some of these deals with CodeBeamer are very substantial in size, right? Not only the add-on orders but also the size of the deals because the users that need software development tools like CodeBeamer are, in some cases, a lot larger of a population than the mechanical engineers.

Neil: And so that's why it has such a prioritization of the high dollar value creation opportunities. That's why ALM is part of that. Could I just add, it's also very strategic high ground. It's an important piece of business to win. Absolutely, absolutely. Anything we could talk about in terms of, again, just sort of contours, rough sizing, because it does feel like an important sort of long-term investment area? Yeah, here. So let's just try rough sizing and say it this way.

Kristian: You know, this year we ought to pass through the $100 million mark on ARR with our ALM segment. To be clear, though, that would be the Integrity product we previously had plus the Code Beamer product added together. So, our total ALM portfolio would be $100 million by the end of this year.

Kristian: We'll have to figure that out at some point this year, yeah, and it's growing, you know, faster than the. Thank you. Got it, got it. Guys, very helpful.

Saket Kalia: Again, I tip my cap to both of you. Well done. Great, thank you. So I think that's the end of the questions.

James E. Heppelmann: So before Neil wraps it up, I'd like to just take a minute to personally close out with PTC's investor community and to thank all of you for so many years of support. During my tenure, I always listened carefully and took investor input seriously, and it helped shape our strategies and allowed the PTC team to really move the needle on value creation. I know Neil will do the same. The transition process with Neil has been lengthy, thoughtful, effective, and, frankly, it was even a lot of fun. As a result, I can tell you with confidence that Neil and his team are ready to go. Neil has my congratulations and full support. So I want to sign off then by saying thanks and goodbye one last time, knowing I'm leaving a strong company in good hands. Over to you, Neil.

Neil: Thanks, Jim, truly, and thank you, everyone, for joining us and for your questions today. In the weeks ahead, Kristian, Mike DiTullio, Matt Shimao, and I will be on the road participating in investor conferences, and it would be great to keep the dialogue going. During the last week of February, Kristian will be at the J.P. Morgan Credit Conference in Miami, and Matt will attend the Wolf Conference in New York. During the first week of March, we'll be at the Morgan Stanley and KeyBank Conferences in San Francisco. Then Mike DiTulio will attend the Virtual Loop Conference during the second week of March. And also, we have two bus tours coming to visit us at our Boston headquarters next. Those visits will be hosted by Kristian and me. Please reach out to J.P. Morgan or Piper Sandler if you're interested.

Speaker: And on behalf of the team, thank you again, and we look forward to engaging with you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.