Q3 2024 PTC Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen, thank you for standing by, and welcome to PTC's 2024 third quarter conference call. During today's presentation, all parties will be in a listen-only mode.

Unknown Attendee: Good afternoon, ladies and gentlemen.

Operator: Following the presentation, the conference will open for questions. I'd now like to turn the call over to Matt Shimao, PTC's Head of Investor Relations. Please go ahead.

Matthew Shimao: Thank you for standing by, and welcome to PTC's 2024 Third Quarter conference call. During today's presentation, all parties will be in a listen-only mode.

Speaker Change: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to PTC's 2024 third quarter conference call.

Matthew Shimao: Following the presentation, the conference will open for questions.

Speaker Change: During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will open for questions. I'd now like to turn the call over to Matt Shimao, PTC's Head of Investor Relations. Please go ahead.

Matthew Shimao: I'd now look to turn the call over to Matt Shimao, PTC's Head of Investor Relations. Please go ahead.

Matthew Shimao: Good afternoon. Thank you, Adam, and welcome to PTC's fiscal 2024 third quarter conference call. On the call today, are Neil Barua, Chief Executive Officer, and Christian Teletia, Chief Financial Officer.

Matthew Shimao: Good afternoon. Thank you, Adam. And welcome to PTC's fiscal 2024 third quarter conference call. On the call today are Neil Barua, Chief Executive Officer, and Kristian Talvitie, Chief Financial Officer. Today's conference call is being broadcast live through an audio webcast, and a replay of the call will be available later today at www.ptc.com. During this call, PTC will make forward-looking statements, including guidance as to future operating results. Because such statements deal with future events, after-results may differ materially from those projected in the forward-looking statement.

Speaker Change: Good afternoon. Thank you, Adam, and welcome to PTC's fiscal 2024 third quarter conference call. On the call today are Neil Barua, Chief Executive Officer, and Kristian Talvitie, Chief Financial Officer.

Matthew Shimao: Today's conference call is being broadcast live through an audio webcast, and a replay of the call will be available later today at www.ptc.com. During this call, PTC will make forward-looking statements, including guidance as the future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause accurate results 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.

Speaker Change: Today's conference call is being broadcast live through an audio webcast and a replay of the call will be available later today at www.ptc.com.

Speaker Change: During this call, PTC will make forward-looking statements, including guidance as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements.

Matthew Shimao: 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, July 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.

Speaker Change: 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.

Matthew Shimao: The forward-looking statements, including guidance provided during this call, are valid only as of today's date, July 31st, 2024, and PTC assumes no obligation to update these forward-looking statements.

Speaker Change: The forward-looking statements, including guidance provided during this call, are valid only as of today's date, July 31, 2024, and PTC assumes no obligation to update these forward-looking statements.

Matthew Shimao: During the call, PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. The 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.

Speaker Change: During the call PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

Speaker Change: The 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, Neil Barua.

Neil Barua: With that, I'd like to turn the call over to PTC's Chief Executive Officer, Neil Barra. Thanks, Matt. In Q3, we again delivered solid, constant currency ARR growth, up 12% year-over-year, demonstrating that our portfolio products is resonating with customers. Our Q3 free cash growth was also solid, rising 29% year-over-year.

Matthew Shimao: 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, Neil Barua. Thanks, Matt.

Neil Barua: Thanks Matt. In Q3, we again delivered solid constant currency ARR growth, up 12% year-over-year, demonstrating that our portfolio product is resonating with customers.

Neil Barua: Our Q3 free cash flow growth was also solid, rising 29% year-over-year. Kristian will take you through our quarterly results and forward-looking guidance in detail.

Christian Teletia: Christian will take you through our quarterly results and forward-looking guidance in detail.

Neil Barua: Before we get into more detail, I want to recognize Mike Detullio, who will transition out of the President and Chief Operating Officer roles at the end of the fiscal year and continue as an advisor to me into 2025. Mike's part in PTC success has been profound over his tenure of more than 25 years. We certainly wouldn't be the company we are today without him. In addition, he's been a great partner to me as I stepped into the CEO role. We've been discussing his future plans, and we both agree that it's the right time to start this transition process.

Neil Barua: In Q3, we again delivered solid constant currency ARR growth, up 12% year-over-year, demonstrating that our portfolio product is responding with customers. Our Q3 free cash flow growth was also solid, rising 29% year-over-year. Kristian will take you through our quarterly results and forward-looking guidance in detail. But before we get into more detail, I want to recognize Mike DiTullio, who will transition out of the President and Chief Operating Officer roles at the end of the fiscal year and continue as an advisor to me into 2025.

Speaker Change: Before we get into more detail, I want to recognize Mike DiTullio, who will transition out of the President and Chief Operating Officer roles at the end of the fiscal year and continue as an advisor to me into 2025.

Neil Barua: Mike's part in PTC's success has been profound over his tenure of more than 25 years; we certainly wouldn't be the company we are today without him. In addition, he's been a great partner to me as I've stepped into the CEO role. We've been discussing his future plans, and we both agree that it's the right time to start this transition process. When we start fiscal 25, we'll no longer have the COO position within our leadership structure.

Speaker Change: Mike's part in PTC's success has been profound over his tenure of more than 25 years.

Speaker Change: We certainly wouldn't be the company we are today without him. In addition, he's been a great partner to me as I've stepped into the CEO role. We've been discussing his future plans and we both agree that it's the right time to start this transition process.

Neil Barua: When we start fiscal 25, we'll no longer have the CEO position within our leadership structure. At this stage of my CEO tenure, my approach is to be close to the business and be more directly involved with operations and execution, especially for our key priorities. Accordingly, I will be assuming many of Mike's responsibilities. Additionally, I'd like to reiterate what I said on last quarter's call, which is that I'm turning over lots of stones and looking at everything in this company in order to usher in a new phase of focus and effectiveness across the entire company.

Speaker Change: When we start Fiscal 25, we'll no longer have the COO position within our leadership structure.

Neil Barua: At this stage of my CEO tenure, my approach is to be close to the business and be more directly involved with operations and execution, especially for our key priorities. Accordingly, I will be assuming many of Mike's responsibilities. Additionally, I'd like to reiterate what I said on last quarter's call, which is that I'm turning over lots of stones and looking at everything in this company in order to usher in a new phase of focus and effectiveness across the entire company.

Speaker Change: At this stage of my CEO tenure, my approach is to be close to the business and be more directly involved with operations and execution, especially for our key priorities. Accordingly, I will be assuming many of Mike's responsibilities.

Speaker Change: Additionally, I'd like to reiterate what I said on last quarter's call, which is that I'm turning over lots of stones and looking at everything in this company in order to usher in a new phase of focus and effectiveness across the entire company.

Neil Barua: Tony. To that end, while Mike's change was externally visible because we filed an A.K., there are numerous other changes that we have already made and are making across many different areas in the organization. This is an ongoing process that we're doing with the intent of driving more effectiveness in the pursuit of our incredible growth potential.

Neil Barua: To that end, while Mike's change was externally visible because we filed an AK, there are numerous other changes that we have already made and are making across many different areas of the organization. This is an ongoing process that we do with the intent of driving more effectiveness in the pursuit of our incredible growth potential. Let's move now to slide four, which highlights our product portfolio and strategy. As a reminder, our five focus areas are 1. PLM, which is driven primarily by our Windchill product, 2.

Speaker Change: To that end, while Mike's change was externally visible because we filed an AK, there are numerous other changes that we have already made and are making across many different areas of the organization.

Speaker Change: This is an ongoing process that we're doing with the intent of driving more effectiveness in the pursuit of our incredible growth potential.

Neil Barua: Let's move down to slide four, which highlights our product portfolio and strategy. As a reminder, our five focus areas are one PLM, which is driven primarily by our windshield product; two PLM, which is driven by our codefimmer product; three SLM, which is primarily driven by service backs; four CAD, which is driven primarily by Creole; and five are continued focus on SAS. These are the areas where we can create the greatest customer value, and are the areas where we are focusing our resources and attention. At the most basic level, our customers need to introduce new products at a faster pace and with higher quality.

Neil Barua: ALM, which is driven by our CodeBeamer product, 3. SLM, which is primarily driven by ServiceMax, 4. CAD, Chairman, primarily by CREO, and five, our continued focus on SAP. These are the areas where we can create the greatest customer value and are the areas where we are focusing our resources and attention. At the most basic level, our customers need to introduce new products at a faster pace and with higher quality. It is not unusual to hear from customers that they need to shorten their new product introduction timelines by half.

Speaker Change: Let's move down to slide 4, which highlights our product portfolio and strategy.

Speaker Change: As a reminder, our five focus areas are 1. PLM, which is driven primarily by our Windchill product, 2. ALM, which is driven by our CodeBeamer product, 3. SLM, which is primarily driven by ServiceVax, 4. CAD, which

Speaker Change: which is driven primarily by Creo, and five, our continued focus on SAS.

Speaker Change: These are the areas where we can create the greatest customer value and are the areas where we are focusing our resources and attention.

Speaker Change: At the most basic level, our customers need to introduce new products at a faster pace and with higher quality.

Neil Barua: It is not unusual to hear from customers that they need to shorten their new product introduction timelines in half. That's not possible without digital transformation across their workflows, which is exactly what our products enable. It's also worth highlighting that we're bringing our suite of software offerings together to help product companies improve their competitiveness. Given the unique breadth and openness of our portfolio, we can enable end-to-end digital thread initiatives, which leverage a connected flow of product data across design, manufacturing, service, and ultimately reuse. A digital thread enables product companies to break down silos, streamline workflows, and achieve interoperability across departments, functions, and systems of a single version of truth.

Speaker Change: It is not unusual to hear from customers that they need to shorten their new product introduction timelines in half. That's not possible without digital transformation across their workflows, which is exactly what our products enable.

Neil Barua: That's not possible without digital transformation across their work, which is exactly what our product's name is. It's also worth highlighting that we are bringing our suite of software offerings together to help product companies improve their competitiveness. Given the unique breadth and openness of our portfolio, we can enable end-to-end digital threat initiatives, which leverage a connected flow of product data across design, manufacturing, service, and ultimately, digital threat enables product companies to break down silos, streamline workflows, and achieve interoperability across departments, functions, and systems with It also secures quality.

Speaker Change: It's also worth highlighting that we are bringing our suite of software offerings together to help product companies improve their competitiveness.

Speaker Change: Given the unique breadth and openness of our portfolio, we can enable end-to-end digital threat initiatives, which leverage a connected flow of product data across design, manufacturing, service, and ultimately reuse.

Speaker Change: A digital threat enables product companies to break down silos, streamline workflows, and achieve interoperability across departments, functions, and systems with a single version of truth.

Neil Barua: It also secures the quality, consistency, and traceability of product-related data, ensuring that the data is up-to-date, accessible, reliable, and actionable. With a digital thread, the right data is delivered to the right people at the right time and in the right context across the value chain. The demand drivers for core offerings are strong, and our differentiated capabilities to drive digital thread initiatives are increasingly important to our customers. There is so much we can do to help our customers drive better business outcomes.

Operator: Transcripts provided by Transcription Outsourcing, LLC. With a digital thread, the right data is delivered to the right people, at the right time, and in the right context across the value chain. The demand drivers for our core offerings are strong, and our differentiated capabilities to drive digital threat initiatives are increasingly important to our customers. There's so much we can do to help our customers drive better business outcomes. To unlock this potential, I have started to focus on our operations.

Speaker Change: It also secures the quality, consistency, and traceability of product-related data, ensuring that the data is up-to-date, accessible, reliable, and actionable.

Speaker Change: With a digital thread, the right data is delivered to the right people at the right time and in the right context across the value chain.

Speaker Change: The demand drivers for our core offerings are strong, and our differentiated capabilities to drive digital threat initiatives are increasingly important to our customers.

Speaker Change: There is so much we can do to help our customers drive better business outcomes. To unlock this potential, I have started to focus on our operations, taking a fresh look at ways to continue driving improvements.

Neil Barua: To unlock this potential, I have started to focus on our operations, taking a fresh look at ways to continue driving improvements. On last quarter's call, we discussed re-balancing some R&D resources away from creating new stand-alone IoT and augmented reality applications to instead support the growth of our core products. That was just the first step. Putting in place an organizational design that enables us to scale more programmatically will set us up for continuous success in the future.

Operator: Taking a fresh look at ways to continue driving growth. On last quarter's call, we discussed rebalancing some R&D resources away from creating new standalone IoT and augmented reality applications to instead support growth of our core products. But that was just the first step.

Speaker Change: On last quarter's call, we discussed rebalancing some R&D resources away from creating new standalone IoT and augmented reality applications to instead support growth of our core products.

Neil Barua: Putting in place an organizational design that enables us to scale more programmatically will set us up for continued success. We are now primarily turning our attention to optimizing our go-to-market and G&A activities. As I mentioned up front, we've leanned out the go-to-market management structure so there are fewer layers between me and our customers. At this point, we are moving forward without the Chief Operating Officer and Chief Revenue Officer roles, and I will be working directly with our Head of Sales and Head of Customer Success.

Speaker Change: That was just the first step. Putting in place an organizational design that enables us to scale more programmatically will set us up for continued success in the future.

Neil Barua: We are now primarily turning our attention to optimizing our go-to-market and G&A activities. As I mentioned up front, we've leaned out the go-to-market management structure, so there are less layers between me and our customers. At this point, we are moving forward without the Chief Offering Officer and Chief Revenue Officer roles, and I'll be working directly with our Head of Sales and Head of Customer Success. We are actively looking at every faster business to continue driving alignment and effectiveness across our entire company. It is about focusing on customer value and getting more effective with each dollar we spend to support them and capture that demand.

Speaker Change: We are now primarily turning our attention to optimizing our go-to-market and G&A activities.

Speaker Change: As I mentioned up front, we've leaned out the go-to-market management structure so there are less layers between me and our customers.

Speaker Change: At this point, we are moving forward without the Chief Operating Officer and Chief Revenue Officer roles, and I will be working directly with our Head of Sales and Head of Customer Success.

Neil Barua: We are actively looking at every facet of our business to continue driving alignment and effectiveness across our entire company. It's about focusing on customer value and getting more effective with each dollar we spend to support them and capture that demand. The opportunities to achieve this are significant here at Penn State.

Speaker Change: We are actively looking at every facet of our business to continue driving alignment and effectiveness across our entire company. It is about focusing on customer value and getting more effective with each dollar we spend to support them and capture that demand.

Neil Barua: The opportunities to achieve this are significant here at PDC.

Speaker Change: The opportunities to achieve this are significant here at PTC.

Neil Barua: We are in the early innings of doing this work, and we expect the heavy lifting to continue in fiscal 25.

Neil Barua: We are in the early innings of doing this work, and we expect the heavy lifting to continue in fiscal 25. I'd like to turn now to discuss three of our focus areas to illustrate the significant value we bring to customers. This quarter, I'll touch on what we have been seeing with customers of our Windchill PLM, CodeBeamer ALM, and ServiceMax SLM products. Starting with PLM on slide 5, this is Product Life Cycle Management, and Windchill is our flagship PLM product. PLM systems tend to be really sticky and are mission critical for our customers. This is software that historically has had the function of helping CAD engineers keep track of their CAD files.

Speaker Change: We are in the early innings of doing this work and we expect the heavy lifting to continue in Fiscal 25.

Neil Barua: I'd like to turn now to discuss three of our focus areas to illustrate the significant value we bring to customers. This quarter, I'll touch on what we have been seeing with customers of our windshield PLM, CodeBimmer ALM, and ServiceMax SLM products. Starting with PLM on slide five, this is Product Lifecycle Management and Windshield is our flagship PLM products. PLM systems tend to be really sticky and are mission-critical for our customers. This is software that historically had the function of helping CAD engineers keep track of their CAD files. Now PLM is at the epicenter of digital translation issues and product companies.

Speaker Change: I'd like to turn now to discuss three of our focus areas to illustrate the significant value we bring to customers. This quarter, I'll touch on what we have been seeing with customers of our Windchill PLM, CodeBeamer ALM, and ServiceMax SLM products.

Speaker Change: Starting with PLM on slide five. This is product lifecycle management and Windchill is our flagship PLM product. PLM systems tend to be really sticky and are mission critical for our customers.

Speaker Change: This is software that historically had the function of helping CAD engineers keep track of their CAD files. Now, PLM is at the epicenter of digital transformation initiatives at product companies.

Neil Barua: Now, PLM is at the epicenter of digital transformation initiatives and product development. As I explained last quarter, product companies are increasingly focused on compressing the time it takes to get new products to market. And at the same time, their products have continued to get much more complex, both to design and produce.

Neil Barua: As I explained last quarter, product companies are increasingly focused on compressing the time it takes to get new products to market. And at the same time, their products continue to get much more complex, both to design and produce. The complexity becomes untenable; quality and time to market get impacted. Sooner or later, it becomes very clear that having an advanced PLM system is a strategic necessity. In general, manufacturing companies have a long way to go in terms of their digital translation journeys. And when a product company gets really serious about optimizing and automating their design and manufacturing processes, we tend to see large PLM expansion projects and step function increases in ARR as customers expand their windshield deployments in terms of both seats and functionality.

Speaker Change: As I explained last quarter, product companies are increasingly focused on compressing the time it takes to get new products to market. And at the same time, their products continue to get much more complex, both to design and produce.

Neil Barua: The complexity becomes untenable, and quality and time to market are impacted. Sooner or later, it becomes very clear that having an advanced PLM system is a strategic necessity. In general... Manufacturing companies have a long way to go in terms of their digital transformation journey. And when a product company gets really serious about optimizing and automating their design and manufacturing process, you tend to see large PLM expansion projects and step function increases in ARR as customers expand their windshield deployments in terms of both seats and functionality.

Speaker Change: The complexity becomes untenable. Quality and time to market gets impacted. Sooner or later, it becomes very clear that having an advanced PLM system is a strategic necessity.

Speaker Change: In general, manufacturing companies have a long way to go in terms of their digital transformation journeys.

Speaker Change: And when a product company gets really serious about optimizing and automating their design and manufacturing processes, we tend to see large PLM expansion projects and step function increases in ARR as customers expand their windshield deployments in terms of both seats and functionality.

Neil Barua: A good example of this is our Q3 win at a supplier to the automotive industry that specializes in cabling and wiring harness solutions. Given the rise of software defined vehicles and the importance of electronic wiring systems, the role of this company in the automotive supply chain has grown. It's interesting that this company already appreciates the value of leveraging their PLM system beyond engineering to drive better business outcomes. They are using Windshield within R&D, but they're currently using homegrown tools to drive collaboration across their engineering supply chain, manufacturing, and quality assurance teams. Over time, maintaining their homegrown system became unsustainable from both a complexity and cost standpoint.

Neil Barua: A good example of this is our Q3 win at a supplier to the automotive industry that specializes in cabling and wiring harnesses. Given the rise of software-defined vehicles and the importance of electronic wiring systems, the role of this company in the automotive supply chain has grown. It's interesting that this company already appreciated the value of leveraging their PLM system beyond engineering to drive better business outcomes. They are using Windchill within R&D, but they're currently using homegrown tools to drive collaboration across their engineering, supply chain, manufacturing, and quality assurance. Over time, retaining their homegrown system became unsustainable from both the complexity and cost impact.

Speaker Change: A good example of this is our Q3 win at a supplier to the automotive industry that specializes in cabling and wiring harness solutions.

Speaker Change: Given the rise of software-defined vehicles and the importance of electronic marketing systems, the role of this company in the automotive supply chain has grown.

Speaker Change: It's interesting that this company already appreciates the value of leveraging their PLM system beyond engineering to drive better business outcomes.

Speaker Change: They are using Windchill within R&D, but they are currently using homegrown tools to drive collaboration across their engineering, supply chain, manufacturing, and quality assurance teams.

Speaker Change: Over time, maintaining their homegrown system became unsustainable from both the complexity and cost standpoint.

Neil Barua: They've found a compelling that extending windshield beyond engineering is easy to implement and provides quick time to value, and they decide to standardize on their windshield system as their backbone for enterprise-wide collaboration around their product data.

Neil Barua: They found it compelling that extending Windchill beyond engineering was easy to implement and provided quick time to value, and they decided to standardize on their Windchill system as their backbone for enterprise-wide collaboration around their product data. Turning to slide six. The second customer example for today is a medical equipment customer that has been using our CreoCAD and Windchill PLM products for years now. What's interesting is that this customer wants unlocked value by going with the digital thread approach. I will highlight a few minutes.

Speaker Change: They found it compelling that extending Windchill beyond engineering is easy to implement and provides quick time to value, and they decided to standardize on their Windchill system as their backbone for enterprise-wide collaboration around their product data.

Neil Barua: Turning to slide six. The second customer example for today is a medical equipment customer that has been using our CREO CAD and Windchill PLM products for years now. What's interesting is that this customer wants unlocked value by going with the digital thread approach I highlighted a few minutes ago. Our Code Beamer ALM product helped to complete their digital thread vision. After being a Code Beamer customer for about a year testing out the product, they decided they were all in and ready to move forward with their digital thread initiative, and in Q3, they signed a deal with us that will expand their ARR by 190%.

Speaker Change: TURNING TO SLIDE SIX

Speaker Change: The second customer example for today is a medical equipment customer that has been using our CreoCAD and Windchill PLM products for years now. What's interesting is that this customer wants to unlock value by going with the digital thread approach I highlighted a few minutes ago.

Neil Barua: Our CodeBeamer ALM product helped to complete their digital threat vision. After being a CodeBeamer customer for about a year, testing out the product, they decided they were all in and ready to move forward with their digital thread initiative. And in Q3, they signed a deal with us that will expand their ARR by 190%. As a reminder, ALM, or Application Lifecycle Management, helps engineers keep track of product requirements and tests to ensure that all requirements are met. This traceability is very important in safety-critical and regulated industries, including the automotive and medical equipment markets, and is growing in importance across other industries because of the trend toward software-driven products of all types.

Speaker Change: Our CodeBeamer ALM products help to complete their digital threat vision.

Speaker Change: After being a CodeBeamer customer for about a year testing out the product, they decided they were all in, and ready to move forward with their digital thread initiative, and in Q3, they signed a deal with us that will expand their ARR by 190%.

Neil Barua: As a reminder, ALM or Application Lifecycle Management helps engineers keep track of product requirements and tests to sure that all requirements are met. This traceability is very important in safety, critical, and regulated industries, including the automotive and medical equipment markets, and is growing in importance across other industries because of the trend towards software-driven products of all types. Products now contain more embedded software than ever, and for many products, there's an explosion in the number of unique software configurations that need to be developed and updated over time. Code Beamer is a next-gen platform that enables industrial companies to manage this increasing level of complexity.

Speaker Change: As a reminder, ALM, or Application Lifecycle Management, helps engineers keep track of product requirements and tests to ensure that all requirements are met.

Speaker Change: This traceability is very important in safety-critical and regulated industries, including the automotive and medical equipment markets, and is growing in importance across other industries because of the trend towards software-driven products of all types.

Neil Barua: 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 platform that enables industrial companies to manage this increasing level of complexity. It is differentiated from legacy ALM offerings in two key ways. First, it has industry-leading traceability capabilities.

Speaker Change: Products now contain more embedded software than ever.

Speaker Change: 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 platform that enables industrial companies to manage this increasing level of complexity.

Neil Barua: Code Beamer is differentiated from legacy ALM offerings in two key ways. First, Codebeamer has industry-leading traceability capabilities. And second, CodeBeamer also helps with time to market by supporting agile development processes. Consider, for example, what happens when a company has a product in the field that fails? Regulators immediately want to understand which version of the software that product had; might even demand that more stringent new requirements be placed on new products the company makes. Codebeamer is becoming the solution of choice to deal with this new reality. Code Beamer is a big part of completing the digital threat vision for this customer because software plays such a critical role in their new product innovations.

Speaker Change: CodeBeamer is differentiated from legacy ALM offerings in two key ways. First, CodeBeamer has industry-leading traceability capabilities. And second, CodeBeamer also helps with time-to-market by supporting agile development processes.

Neil Barua: And second, CodeBeamer also helps with time-to-market by supporting agile development processes. Consider, for example... What happens when a company has a product in the field that fails? Regulators immediately want to understand which version of the software that product had and might even demand that more stringent new requirements be placed on new products the company makes. Podbeamer is becoming the solution of choice to deal with this new reality.

Speaker Change: Consider, for example, what happens when a company has a product in the field that fails. Regulators immediately want to understand which version of the software that product had, and might even demand that more stringent new requirements be placed on new products the company makes.

Speaker Change: Podbeamer is becoming the solution of choice to deal with this new reality.

Neil Barua: CodeBeamer is a big part of completing the digital thread vision for this customer because software plays such a critical role in their new product innovation. Before having CodeBeamer, they faced challenges managing their high volume of software requirements, which led to unnecessary delays in getting new products to market, as well as exposure to risk. As a medical equipment company, software innovation and regulatory traceability are front and center for this customer, and the value CodeBeamer brought to them gave them the confidence to rely on PPC in a more holistic way.

Speaker Change: CodeBeamer is a big part of completing the digital thread vision for this customer because software plays such a critical role in their new product innovations.

Neil Barua: Before having Code Beamer, they faced challenges managing their high volume of software requirements, which led to unnecessary delays in getting new products to market, as well as exposure to risk. As a medical equipment company, software innovation and regulatory traceability are front and center for the customer, and the value Code Beamer brought to them gave them the confidence to rely on PTC in a more holistic way. They are expanding their Windshield and Code Beamer deployments and will use Windshield as the foundation for their digital threat. The digital threat is becoming increasingly strategic to customers across many industries.

Speaker Change: Before having CodeBeamer, they faced challenges managing their high volume of software requirements, which led to unnecessary delays in getting new products to market, as well as exposure to risk.

Speaker Change: As a medical equipment company, software innovation and regulatory traceability are front and center for this customer, and the value CodeBeamer brought to them gave them the confidence to rely on PPC in a more holistic way.

Neil Barua: They are expanding their Windchill and CodeBeaver deployments and will use Windchill as the foundation for their digital thread. The digital thread is becoming increasingly strategic to customers across many industries, as product companies see the potential to improve their competitiveness by managing the complete lifecycle of their products in a more integrated manner. What is most important to thread together can be different for different customers, but having visibility to a more complete picture and being able to gain actionable insight through a digital thread of product data is becoming table stakes as the competitive environment continues to intensify across many industries.

Speaker Change: The digital thread is becoming increasingly strategic to customers across many industries, as product companies see the potential to improve their competitiveness by managing the complete lifecycle of their products in a more integrated manner.

Neil Barua: As product companies see the potential to improve their competitors by managing the complete lifecycle of their products in a more integrated manner. What is most important to threat together can be different for different customers, but having visibility to a more complete picture and being able to gain actionable insights through a digital threat of product data is becoming table stakes as the competitive environment continues to intensify across many industries.

Speaker Change: What is most important to thread together can be different for different customers, but having visibility to a more complete picture and being able to gain actionable insight through a digital thread of product data is becoming table stakes as the competitive environment continues to intensify across many industries.

Neil Barua: Turning to the third customer example for today, which is a ServiceMax SLM win on slide 7. SLM is service lifecycle management, and one of our main products here is ServiceMax, the industry leader in field service management for high value, long lifecycle product. In Q3, we landed a new PTC customer because of ServiceMax. This customer, engineers, manufactures, and services industrial and electrical power systems around the world, and they like that ServiceMax has become part of PTC. The drivers behind this win were similar in many ways to the elevated company win we highlighted on last quarter's call.

Neil Barua: Turning to the third customer example for today, which is a ServiceMax SLM win on slide 7. SLM is Service Lifecycle Management, and one of our main products here is Service. It is the industry leader in field service management for high-value, long-life cycle products.

Speaker Change: SLM is Service Lifecycle Management and one of our main products here is ServiceMax, the industry leader in field service management for high-value long life cycle products.

Neil Barua: In Q3, we landed a new PTC customer because of service. This customer engineers, manufactures, and services industrial and electrical power systems around the world, and they like that ServiceMax has become part of PTC. The drivers behind this win were similar in many ways to the Elevator Company win we highlighted on last quarter's call. The point is that many product companies are not only focused on managing complexity and accelerating time to market, but they are also looking for new sources of top line and bottom line growth.

Neil Barua: The point is that many product companies are not only focused on managing complexity and accelerating time to market; they are also looking for new sources of top line and bottom line growth. In this example, the customer had a CEO-led initiative to better leverage their install base to grow after-market revenue in a repeatable and cost-effective manner. Because of organizational silos, the customer currently has fragmented service business operation, which impacts their field service productivity and customer service. They struggle to compete with smaller local vendors for aftermarket contracts to service their own products. The customer made the strategic decision that it was time to transform their service operations, and they selected ServiceMax.

Neil Barua: In this example, the customer had a CEO-led initiative to better leverage their installed base to grow aftermarket revenue in a repeatable and cost-effective manner. Because of organizational silos, the customer currently has a fragmented service business operation, which impacts their field service productivity and customer service. They struggle to compete with smaller local vendors for aftermarket contracts to service their own products.

Speaker Change: In this example, the customer had a CEO-led initiative to better leverage their install base to grow aftermarket revenue in a repeatable and cost-effective manner.

Speaker Change: They struggle to compete with smaller local vendors for aftermarket contracts to service their own products.

Neil Barua: The customer made the strategic decision that it was time to transform their service operations, and they selected ServiceVac. The ServiceMax System will be their software foundation and single source of truth for their aftermarket services and customer service initiatives. Before going out into the field, the ServiceMax application will help their service technicians understand everything they need to know about the specific product that needs servicing so that they can bring the right parts. It will also schedule and route the field technicians efficiently and guide the field technicians through complex, Typical Service Act deals. The selection process was very thorough.

Speaker Change: The customer made the strategic decision that it was time to transform their service operations and they selected ServiceVax.

Neil Barua: The Service Max system will be their software foundation and single source of truth for their aftermarket services and customer service initiatives. Before going out into the field, the ServiceMax application will help their service technicians understand everything they need to know about the specific product that needs servicing so that they can bring the right parts with them. The Service Max application will also schedule and route the field technicians efficiently and guide the field technicians through complex procedures. As typical Service Max deals, the selection process was very thorough, and Service Max came on top based on product capabilities that align with the priorities of the customer to drive more proactive customer service, improve visibility into their install base products, drive higher aftermarket attachments, and improve field technician legalization.

Speaker Change: The ServiceMax system will be their software foundation and single source of truth for their aftermarket services and customer service initiatives.

Speaker Change: Before going out into the field, the ServiceMax application will help their service technicians understand everything they need to know about the specific product that needs servicing so that they can bring the right parts with them.

Speaker Change: The ServiceMax application will also schedule and route the field technicians efficiently and guide the field technicians through complex procedures.

Speaker Change: As typical with Service Max deals, the selection process was very thorough.

Neil Barua: The service mech came on top based on product capabilities that align with the priorities of the customer to drive more proactive customer service, improve visibility into their installed base of products, drive higher aftermarket attach rates, and improve field technician legalization. Lastly, we also remain encouraged by our other focus areas that they didn't provide examples for, which are CAD and SAS. We have been reinvesting in our business, consistently growing our annual R&D investment footprint to provide greater value to our customers.

Speaker Change: And ServiceMech came on top based on product capabilities that align with the priorities of the customer to drive more proactive customer service, improve visibility into their install base of products, drive higher aftermarket attach rates, and improve field technician lead utilization.

Neil Barua: Lastly, we also remain encouraged by our other focus areas that it didn't provide examples for this board, which are CAD and SAS. We have been reinvesting in our business, consistently growing our annual R&D investment footprint to provide greater value to our customers. In Q3, we made incremental progress in each of our five focus areas towards executing in a scalable fashion and focusing our investments on the product advancements that customers care the most about. As I emphasized earlier, you should expect to see a continued focus on aligning all our resources across all operational functions in this company behind our five focus areas.

Speaker Change: Lastly, we also remain encouraged by our other focus areas that didn't provide examples for this course.

Speaker Change: We have been reinvesting in our business, consistently growing our annual R&D investment footprint to provide greater value to our customers.

Neil Barua: In Q3, we made incremental progress in each of our five focus areas towards executing in a scalable fashion and focusing our investments on the product advancements that customers care the most about. As I emphasized earlier, you should expect to see a continued focus on aligning all our, across all operational functions in this company behind our five focus areas. This is foundational work, and we will be disciplined about seeing it through. It will take time, and progress may not be linear, but we will leave no stone unturned, as I said, as we focus on scaling our business and further improving the consistency of our execution. With that, I'll hand the call over to Kristian to take you through our Q3 financial results and future guidance. Thank you, Neil. And hello, everyone. Starting off with slide nine.

Speaker Change: In Q3, we made incremental progress in each of our five focus areas towards executing in a scalable fashion and focusing our investments on the product advancements that customers care the most about.

Speaker Change: As I emphasized earlier, you should expect to see a continued focus on aligning all our resources.

Speaker Change: across all operational functions in this company behind our five focus areas.

Neil Barua: This is foundational work, and we will be disciplined about seeing it through. It will take time, and progress may not be linear, but we will leave no stone unturned, as I said, as we focus on scaling our business and further improving the consistency of our execution.

Speaker Change: This is foundational work, and we will be disciplined about seeing it through. It will take time, and progress may not be linear, but we will leave no stone unturned, as I said, as we focus on scaling our business and further improving the consistency of our execution.

Christian Teletia: With that, I'll hand the call over to Christian to take you through our Q3 financial results and future guidance. Thank you, Neil, and hello, everyone. Starting off with Slide 9. TTC again delivered solid financial results in terms of both ARR and free cash flow in a continued challenging, selling environment. As you know, we believe ARR and free cash flow are the most important metrics to assess the performance of our business. To help investors understand our business performance, excluding the impact of foreign exchange volatility, we provide ARR guidance and disclose our ARR results on a constant currency basis.

Kristian: With that, I'll hand the call over to Kristian to take you through our Q3 financial results and future guidance.

Kristian: Thank you, Neil, and hello, everyone.

Kristian P. Talvitie: We have again delivered solid financial results in terms of both ARR and free cash flow in a continued challenging selling environment. As you know, we believe ARR... And free cash flow are the most important metrics to assess the performance of our business. To help investors understand our business performance, excluding the impact of foreign exchange volatility, we provide ARR guidance and disclose our ARR results on a constant currency basis. At the end of Q3, our constant currency ARR was $2.125 billion, up 12% year-over-year and within our guidance.

Kristian: Starting off with slide 9.

Kristian: ETC again delivered solid financial results in terms of both ARR and free cash flow in a continued challenging selling environment.

Kristian: As you know, we believe ARR and free cash flow are the most important metrics to assess the performance of our business.

Kristian: To help investors understand our business performance, excluding the impact of foreign exchange volatility, we provide ARR guidance and disclose our ARR results on a constant currency basis.

Christian Teletia: At the end of Q3, our constant currency ARR was 2.125 billion, up 12% year over year and within our guidance range. Our free cash flow results were also solid, up 29% year over year, well at the same time, continuing to invest in our key focus areas. However, we came in a bit below our guidance of approximately 220 million due to timing. We have a high degree of confidence in our cash flow guidance and targets due to the predictability of our cash collections and the disciplined resource allocation structure we have in place. With the timing issues resolved, we continue to expect free cash flow of 725 million in fiscal 24 and continue to be confident that our business model positions us to deliver solid, predictable results.

Kristian: At the end of Q3, our constant currency ARR was $2.125 billion, up 12% year-over-year, and within our guidance range.

Kristian P. Talvitie: Our free cash flow results were also solid, up 29% year over year, while at the same time continuing to invest in our key focus areas. However, we came in a bit below our guidance of approximately $220 million due to time.

Kristian: Our free cash flow results were also solid, up 29% year over year, while at the same time continuing to invest in our key focus areas.

Kristian: However, we came in a bit below our guidance of approximately $220 million due to timing.

Kristian P. Talvitie: We have a high degree of confidence in our cash flow guidance and targets due to the predictability of our cash collections and the disciplined resource allocation structure we have in place. With the timing issues resolved, we continue to expect free cash flow of $725 million in Fiscal 24, and we continue to be confident that our business model positions us to deliver solid, predictable results. Turning to slide 10, let's look at our ARR growth in more detail, starting with our product. In Q3, we delivered 10% constant currency ARR growth in CAD and 13% growth in PLF.

Kristian: We have a high degree of confidence in our cash flow guidance and targets due to the predictability of our cash collections and the disciplined resource allocation structure we have in place.

Kristian: With the timing issues resolved, we continue to expect free cash flow of $725 million in fiscal 2024 and continue to be confident that our business model positions us to deliver solid, predictable results.

Christian Teletia: Turning to slide 10, let's look at our ARR growth in more detail. Starting with our product groups, in Q3 we delivered 10% constant currency ARR growth in CAD and 13% growth in PLA. Despite the overall demand environment, which has been sluggish for a couple of years now, our top line has shown good resilience. Our solid ARR growth is supported by our unique portfolio with a solid footprint in high growth segments of the market and the digital transformation journeys of our customers. These underlying strengths are further supported by our subscription model, our low-churn rate, and the propensity for our customer base to prioritize their own R&D investments through challenging times.

Kristian: Turning to slide 10, let's look at our ARR growth in more detail.

Kristian: Starting with our product groups.

Kristian: In Q3, we delivered 10% constant-currency ARR growth in CAD and 13% growth in PLF.

Kristian P. Talvitie: Despite the overall demand environment, which has been sluggish for a couple of years now, our top line has shown good resilience. Our solid ARR growth is supported by our unique portfolio with a solid footprint in high-growth segments of the market and the digital transformation journeys of our customers. These underlying strengths are further supported by our subscription model, our low churn rate, and the propensity for our customer base to prioritize their own R&D investments through challenging times.

Speaker Change: Despite the overall demand environment, which has been sluggish for a couple of years now, our top line has shown good resilience.

Kristian: Our solid ARR growth is supported by our unique portfolio, with a solid footprint in high-growth segments of the market and the digital transformation journeys of our customers.

Kristian: These underlying strengths are further supported by our subscription model, our low churn rate, and the propensity for our customer base to prioritize their own R&D investments through challenging times.

Christian Teletia: Moving to our ARR by region, our constant currency, organic ARR growth was solid across the Americas, Europe, and APEC with growth in the low-to-mid double-digit. Across all regions, our EUR over EUR organic constant currency growth rates in Q3 were similar to the growth rates we saw in Q2.

Kristian P. Talvitie: Moving to our ARR by region, our constant currency organic ARR growth was solid across the Americas, Europe, and APAC, with growth in the low to mid-double-digits. Across all regions, our year-over-year organic constant currency growth rates in Q3 were similar to the growth rates we saw in Q2.

Kristian: Moving to our ARR by region, our constant currency organic ARR growth was solid across the Americas, Europe , and APAC.

Kristian: with growth in the low to mid-double digits.

Kristian: Across all regions, our year-over-year organic constant currency growth rates in Q3 were similar to the growth rates we saw in Q2.

Christian Teletia: Moving to slide 11, first of all, given the consistency and predictability of our free cash flow, we aim to maintain a low cash balance. As you know, 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 purchases, while also taking into consideration the interest rate environment and strategic opportunities. Given the strategic acquisitions, namely ServiceMax and Codebeamer that we've done over the past couple of years and the debt we took on to fund them, we paused our share purchase program.

Kristian P. Talvitie: Moving to slide 11, first of all, given the consistency and predictability of our free cash flow, we aim to maintain a low cash balance. As you know, 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. Given the strategic acquisitions, namely ServiceMax and CodeBeamer, that we've done over the past couple of years and the debt we took on to fund them, we've paused our share repurchase program.

Kristian: Moving to slide 11. First of all, given the consistency and predictability of our free cash flow, we aim to maintain a low cash balance.

Kristian: As you know, 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: Given the strategic acquisitions, namely ServiceMax and CodeBeamer, that we've done over the past couple of years, and the debt we took on to fund them, we've paused our share repurchase program.

Christian Teletia: As we said before, we intend to use substantially all of our free cash flow to pay down our debt in fiscal 24, and as we've been saying, we'll revisit the prioritization of debt paydown and sharey purchases when we get to fiscal 25. We were 2.2 times levered at the end of Q3. During the quarter, we paid down our debt by $195 million and ended Q3 with cash and cash equivalence of $248 million in gross debt of $1.8 billion. We continue to expect that we'll end in fiscal 24 with gross debt of approximately $1.7 billion. Lastly, we expect fully diluted shares of approximately $121 million in fiscal 24.

Kristian P. Talvitie: As we've said before, we intend to use substantially all of our free cash flow to pay down our debt in fiscal 24, and as we've been saying, we'll revisit the prioritization of debt paydown and share repurchases when we get to fiscal 25, were 2.2 times levered at the end of Q3. During the quarter, we paid down our debt by $195 million and ended Q3 with cash and cash equivalents of $248 million and gross debt of $1.8 billion.

Kristian: As we've said before, we intend to use substantially all of our free cash flow to pay down our debt in Fiscal 24 and as we've been saying, we'll revisit the prioritization of debt pay down and share repurchases when we get to Fiscal 25.

Kristian: We were 2.2 times levered at the end of Q3. During the quarter, we paid down our debt by $195 million and ended Q3 with cash and cash equivalents of $248 million and gross debt of $1.8 billion.

Kristian P. Talvitie: We continue to expect that we'll end fiscal 24 with gross debt of approximately $1.7 billion. Lastly, we expect fully diluted shares of approximately 121 million in fiscal 24, up by approximately one and a half million shares year over year.

Kristian: We continue to expect that we'll end fiscal 24 with gross debt of approximately $1.7 billion.

Kristian: Lastly, we expect fully diluted shares are approximately 121 million in fiscal 24 up by approximately one and a half million shares year over year.

Christian Teletia: Up by approximately $1.5 million shares year-over-year.

Christian Teletia: With that, I'll take you through our guidance on Slide 12. Reflecting our year-to-date performance and our outlook for Q4. We're updating our fiscal 24 constant currency ARR guidance, lowering the high end of the range by $20 million. And now expect to end the year with constant currency ARR growth of 11 to 12%. It's worth noting we're updating our revenue guidance accordingly, reducing the high end by $20 million. We're reiterating our free cash flow guidance of approximately $725 million in fiscal 24, given our year-to-date performance and Q4 outlook. For Q4, we're guiding for free cash flow of approximately $83 million in constant currency ARR of 2.2 to 2.22 billion, which corresponds to year-over-year growth of 11 to 12%.

Kristian P. Talvitie: With that, I'll take you through our guidance on slide 12. Reflecting our year-to-date performance and our outlook for Q4, we're updating our Fiscal 24 Constant Currency ARR guidance, lowering the high end of the range by $20 million, and now expect to end the year with constant currency ARR growth of 11% to 12%. It's worth noting that we're updating our revenue guidance accordingly, reducing the high end by $20 million. We're reiterating our free cash flow guidance of approximately $725 million in Fiscal 24 given our year-to-date performance in Q4.

Kristian: With that, I'll take you through our guidance on slide 12.

Kristian: Our year-to-date performance and our outlook...

Kristian: For Q4, we're updating our fiscal 24 constant currency ARR guidance, lowering the high end of the range by $20 million, and now expect to end the year with constant currency ARR growth of 11% to 12%.

Kristian: It's worth noting we're updating our revenue guidance accordingly, reducing the high end by $20 million.

Kristian: We're reiterating our free cash flow guidance of approximately $725 million in Fiscal 24, given our year-to-date performance in Q4 outlook.

Kristian P. Talvitie: For Q4, we're guiding for free cash flow of approximately $83 million and constant currency ARR of $2.2 to $2.22 billion, which corresponds to year-over-year growth of 11% to 12%. We believe we've set our guidance appropriately. I'll get a little more into ARR guidance details on the next slide, but before I do, I'd also like to reiterate my favorite reminder to help you with your models: we're providing revenue and EPS guidance. But ASC-606 makes revenue and EPS difficult to predict for PTC since we primarily sell on-premises subscriptions. And the way revenue is recognized from these contracts can vary significantly based on variables that aren't necessarily relevant to the performance of the business.

Kristian: For Q4, we're guiding for free cash flow of approximately $83 million and constant currency ARR of $2.2 to $2.22 billion, which corresponds to year-over-year growth of 11 to 12 percent. We believe we've set our guidance appropriately.

Christian Teletia: We believe we've set our guidance appropriately. I'll get a little more into ARR guidance details on the next slide. But before I do, I'd also like to reiterate my favorite reminder to help you with your models. We're providing revenue and EPS guidance. But ASC 606 makes revenue and EPS difficult to predict for PTC since we primarily sell on-premises subscriptions. And the way revenue is recognized from these contracts can vary significantly based on variables that aren't necessarily relevant to the performance of the business. I did a teach-in on this subject on our Q422 call that you may want to refer to if you are new to PTC.

Speaker Change: I'll get a little more into ARR guidance details on the next slide, but before I do, I'd also like to reiterate my favorite reminder, to help you with your models, we're providing revenue and EPS guidance.

Speaker Change: But ASC 606 makes revenue and EPS difficult to predict for PTC since we primarily sell on-premises subscriptions.

Speaker Change: And the way revenue is recognized from these contracts can vary significantly based on variables that aren't necessarily relevant to the performance of the business.

Kristian P. Talvitie: I did a teach-in on this subject on our Q4-22 call that you may want to refer to if you are 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. We primarily bill our customers annually up front, one year at a time, regardless of the contract term length.

Speaker Change: I did a teach-in on this subject on our Q4-22 call that you may want to refer to if you are new to PTC.

Christian Teletia: 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. We primarily bill our customers annually, upfront, one year at a time, regardless of contract term lengths. So our free cash flow results over time are comparable. Moving to slide 13, here's an illustrative constant currency ARR model for Q4. You can see our results over the past 11 quarters, and the column on the far right illustrates what is needed to get to the midpoint of our constant currency ARR guidance.

Speaker Change: The summary is we believe ARR and free cash flow rather than revenue and operating income.

Speaker Change: are the best metrics to assess the performance of our business.

Speaker Change: Importantly, we've maintained consistent billing practices over time. We primarily bill our customers annually up front, one year at a time, regardless of contract term lengths.

Kristian P. Talvitie: So our free cash flow results over time are comparable... Moving to slide 13, here's an illustrative constant currency ARR model for Q4. You can see our results over the past 11 quarters, and the column on the far right illustrates what is needed to get to the midpoint of our constant currency ARR guidance. The illustrative model indicates that to hit the midpoint of our Q4 guidance range, we need $85 million of sequential growth in that new ARR growth.

Speaker Change: So our free cash flow results over time are comparable.

Speaker Change: Moving to slide 13, here's an illustrative constant currency ARR model for Q4.

Speaker Change: You can see our results over the past 11 quarters, and the column on the far right illustrates what is needed to get to the midpoint of our constant currency ARR guidance.

Christian Teletia: The illustrative model indicates that to hit the midpoint of our Q4 guidance range, we need 85 million of sequential net new ARR growth. This is approximately 10 million more than we added in Q4 of the previous two fiscal years. And this year we expect to benefit from codebeamer cross-selling service max with an aligned and enabled sales force and approximately 5 million more deferred ARR than we had in Q4 of fiscal 23. We think our guidance range for Q4 and the full year balance both risk and opportunity. Looking out a little further ahead to our fiscal 25, and here keep in mind that we're still in the middle of our detailed planning process, but I would not be surprised if our official fiscal 25 guidance, when we give it next quarter, was in the low devil's digital ARR growth range, consistent with our medium term targets and in line with our performance over the past couple of years. Again, balancing both risk and opportunity.

Speaker Change: The illustrative model indicates that to hit the midpoint of our Q4 guidance range, we need $85 million of sequential in that new ARR growth.

Kristian P. Talvitie: This is approximately $10 million more than we added in Q4 of the previous two fiscal years. And this year, we expect to benefit from CodeBeamer, cross-selling ServiceMax with an aligned and enabled sales force, and approximately $5 million more deferred ARR than we had in Q4 of fiscal 23. We think our guidance range for Q4 and the full year balances both risk and opportunity, looking out a little further ahead to our fiscal 25. And here, keep in mind that we're still in the middle of our detailed planning process. But I would not be surprised if our official.

Speaker Change: This is approximately $10 million more than we added in Q4 of the previous two fiscal years.

Speaker Change: And this year, we expect to benefit from CodeBeamer, cross-selling ServiceMax with an aligned and enabled sales force, and approximately $5 million more deferred ARR than we had in Q4 of fiscal 23.

Speaker Change: We think our guidance range for Q4 and the full year balanced both risk and opportunity.

Speaker Change: And looking out a little further ahead to our fiscal 25. And here, keep in mind that we're still in the middle of our detailed planning process.

Kristian P. Talvitie: Fiscal 25 guidance, when we give it next quarter, was in the low double-digit ARR growth range, consistent with our medium-term targets and in line with our performance over the past couple of years, again balancing both risk and opportunity. I also anticipate our free cash flow guidance would be somewhere within the 825 to 875 million dollar range we previously communicated. Additionally, as we think about capital allocations. I think you will see us resume share repurchases in fiscal 25 at and around the $300 million level as we balance debt repayment with returning capital to shareholders.

Speaker Change: But, I would not be surprised if our official

Speaker Change: Fiscal 25 guidance, when we give it next quarter, was in the low double-digit ARR growth range, consistent with our medium-term targets, and in line with our performance over the past couple of years.

Christian Teletia: I also anticipate our free cash flow guidance would be somewhere within the $825 to $875 million range we previously communicated. Additionally, as we think about capital allocation. I think you will see us resume share repurchases in fiscal 25 in and around the $300 million level as we balance debt pay down with returning capital to shareholders. Obviously, we'll provide our official guidance on next quarter's call, but we just wanted to provide some directional thinking that we feel pretty comfortable with given the recurring nature of our business model and the budgeting process we have in place.

Speaker Change: Again, balancing both risk and opportunity.

Speaker Change: I also anticipate our free cash flow guidance would be somewhere within the 825 to 875 million dollar range we previously communicated.

Speaker Change: Additionally, as we think about capital allocation,

Speaker Change: I think you will see us resume share repurchases in fiscal 25 in and around the $300 million level as we balance debt pay down with returning capital to shareholders.

Kristian P. Talvitie: Obviously, we'll provide our official guidance on next quarter's call, but we just wanted to provide some directional thinking that we feel pretty comfortable with, given the recurring nature of our business model and the budgeting process we have in place. In conclusion... PTC has a strong portfolio, a solid strategy, and a great team of people with deep expertise and strong customer relations.

Speaker Change: Obviously, we'll provide our official guidance on next quarter's call, but we just wanted to provide some directional thinking that we feel pretty comfortable with, given the recurring nature of our business model and the budgeting process we have in place.

Christian Teletia: In conclusion, PTC has a strong portfolio, solid strategy, and a great team of people with deep expertise and strong customer relationships. We're focused on discipline and consistent execution to ensure we deliver on the value creation opportunities we have ahead of us.

Speaker Change: In conclusion,

Speaker Change: PTC has a strong portfolio.

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

Operator: 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. Thank you. To ask a question, press the star followed by the number one on your telephone keypad.

Speaker Change: We're focused on disciplined and consistent execution to ensure we deliver on the value creation opportunities we have ahead of us.

Unknown Attendee: With that, I'd like to turn the call over to the operator to begin the Q&A session. Thank you. To ask a question, press star followed by the number one on your telephone keypad.

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

Operator: In the interest of time, please limit yourself to one question only. If you have an additional question, please return to the queue. And with that, our first question comes from the line of Siti Panigrahi with Muzuho. Thank you.

Speaker Change: Thank you. To ask a question, press star followed by the number 1 on your telephone keypad. In the interest of time, please limit yourself to one question only. If you have an additional question, please return to the queue.

Unknown Attendee: In the interest of time, please limit yourself to one question only. If you have an additional question, please return to the queue.

Saketan Kalia: And with that, our first question comes from the line of CT Panagrahi with Muzuho. Your line is open. Thank you. Thanks for taking my question. Neil, I want to ask you about the demand environment. How has that changed over the past quarter? How you've gotten worse or feel the same?

Speaker Change: And with that, our first question comes from the line of Siti Panigrahi with Mizuho. Your line is open.

Neil Barua: Thanks for taking my question. Neil, I want to ask you about the demand environment. How has that changed over the past quarter? Has it gotten worse, or is it still the same?

Siti Panigrahi: Thank you, thanks for taking my question. Neil, I want to ask you about the demand environment. How has that changed over the past quarter?

Neil Barua: And when you look at the environment turning around, what do you need to see on the macro data or which leading indicator you look at before you start feeling more confident about things turning around? Sure.

Neil Barua: And when you look at, you know, the environment turning around, what do you need to see in the macro data or which leading indicator you'd look at before you start feeling more confident about, you know, things turning around? Sure. On the first question, in Q3, we saw very small puts and takes across all geographic regions and verticals, absolutely no discernible change in any trend there.

Speaker Change: Have you gotten worse or still the same? And when you look at, you know, the environment turning around, what do you need to see on the macro data or which leading indicator you'd look at before you start feeling more confident about, you know, things turning around?

Neil Barua: On the first question, in Q3, we saw very small puts and takes across all geographic regions and verticals. Absolutely no discernible change in any trend there. As we've been saying, very consistently, the demand environment in Q3 was consistent with what we've seen over the past couple of years.

Neil Barua: Sure, on the first question, in Q3,

Speaker Change: We saw very small puts and takes across all geographic regions.

Speaker Change: and verticals. Absolutely no discernible change in any trend there. As we've been saying very consistently, the demand environment in Q3 was consistent with what we've seen over the past couple of years.

Neil Barua: As we've been saying very consistently, the demand environment in Q3 was consistent with what we've seen over the past couple of years. A good thing, by the way, is that our pipeline is going strong in Q4. In terms of what I'm looking for, what Kristian and I are looking for in terms of areas where we would feel the environment is getting better, is how we think about close rates. And consistently, for the past few years, close rates have been difficult and challenging.

Neil Barua: Good thing, by the way, is our pipeline going to queue for strong in terms of what I'm looking for, what Chris and I are looking for in terms of areas where we would feel the environment's getting better is how we think about close rates. Consistently for the past few years, close rates have been difficult and challenge. Once those close rates on a growing pipeline become better, is my indication of when the environment is better for PDC in terms of securing the deals in a more accelerated manner, but I absolutely feel good about the demand. Again, in fact, our sequential growth in pipeline is increasing, and so we're focusing on closing deals and how they actually attribute to in corner ARR.

Speaker Change: Good thing, by the way, is our pipeline going to Q4 strong.

Speaker Change: In terms of what I'm looking for, what Kristian and I are looking for in terms of areas where we would feel the environment's getting better, is

Kristian: How we think about close rates, and consistently for the past few years, close rates have been difficult and challenged.

Neil Barua: Once those close rates on a growing pipeline become better is my indication of when the environment is better for PTC in terms of securing the deals in a more accelerated manner. But I absolutely feel good about the demand. In fact, our sequential growth and pipeline are increasing. And so we're focusing on closing deals and how they actually attribute to in-quarter ARR. Great, thank you.

Speaker Change: Once those close rates on a growing pipeline become better is my indication of when the environment is better for PTC in terms of

Kristian: securing the deals in a more accelerated manner.

Kristian: But I absolutely feel good about the demand. In fact, our sequential growth and pipeline is increasing. And so we're focusing on closing deals and how they actually attribute to in-corner ARR.

Tyler Radke: Great, thank you. Our next question comes from the line of Tyler Radke with City. Your line is open. Yeah, thank you very much for taking the question. You know, I guess on the demand environment, you know, understandably it's shopping out there. We heard from Microsoft yesterday talking about a mea weakness, but could you just kind of talk about the trends that you saw play out throughout the quarter?

Speaker Change: Great, thank you.

Operator: Our next question comes from Tyler Radke with Citi. Yeah, thank you very much for taking the question. You know, I guess on the demand environment. Understandably, it's choppy out there. We heard from Microsoft yesterday talking about a meal weakness.

Speaker Change: Our next question comes from the line of Tyler Radke with Citi. Your line is open.

Tyler Maverick Radke: Thank you very much for taking the question.

Tyler Maverick Radke: You know I guess on the

Speaker Change: Demand Environment

Speaker Change: You know, understandably, it's choppy out there. We heard from Microsoft yesterday talking about EMEA weakness, but could you just kind of talk about the trend that you saw play out throughout the quarter? And I know that you're making some go-to-market.

Neil Barua: But could you just kind of talk about the trends that you saw play out throughout the quarter? And I know that you're making some go-to-market tweaks as well with kind of taking on more of the customer work load. But how much of this do you think is kind of execution versus macro? And, you know, what are you kind of assuming about the environment here in Q4? Thank you.

Neil Barua: And I know that you're making some go-to-market tweaks as well with kind of taking on more of the customer work, Neil, but how much of this do you think is kind of execution versus macro? And you know, what are you kind of assuming on the environment here in Q4? Thank you.

Neil Barua: tweaks as well with kind of taking on more of the customer work, Neil. But how much of this do you think is kind of execution versus macro and, you know, what are you kind of assuming on the environment here in Q4? Thank you.

Neil Barua: Yeah, first of all, I'm actually pleased with the performance that we delivered in Q3. You know, in terms of over the course of the quarter, again, very small puts and takes of any change in trend across geo's and verticals. I think we've been focusing and executing quite well in this challenging environment. And again, to be clear, no real change in terms of what we're seeing in terms of customer behavior. And again, maybe different than others on other calls, but I've been very consistent around the environment has been challenged.

Neil Barua: Yeah, first of all, I'm actually pleased with the performance that we delivered in Q3. You know, in terms of, over the course of the quarter, again, very small puts and takes on any change in trend across geos and verticals. I think we've been focusing and executing quite well in this challenging environment. And again, to be clear, no real change in terms of what we're seeing in terms of customer behavior. And again, maybe different than others on other calls, but I've been very consistent around the environment when it has been challenged.

Neil Barua: Yeah, first of all, I'm actually pleased with the performance that we delivered in Q3.

Speaker Change: You know, in terms of over the course of the quarter, again,

Speaker Change: Very small puts and takes of any

Neil Barua: Change in trend across geos and verticals. I think we've been focusing and executing quite well in this challenging environment.

Speaker Change: And again, to be clear, no real change in terms of what we're seeing in terms of customer behavior, and again, maybe different than others on other calls, but I've been very consistent around the environment has been challenged.

Neil Barua: Even post-Q2, we mentioned it's challenged, and it remains as such because of this point around close rates. And going into Q4, you know, the way in which we're thinking about this is, and I'll take the piece around guidance, the update to the high end of our guidance takes into account how the deals we landed in Q3 will show up in Q4 ARR. It also factors in the close rates we expect in Q4, based on the further maturation of deals in our pipeline.

Neil Barua: Even post Q2, we mentioned its challenge and it remains as such because of this point around close rates and going into Q4. You know, the way in which we're thinking about this is, and I'll take the piece around guidance, the update to the high end of our guidance takes an account. How the deals we landed in Q3 will show up in Q4 ARR. It also factors in the close rates we expect in Q4 based on the further maturation of deals in our pipeline. In our view, how those will impact Q4 in quarter ARR. So that guidance range we feel is appropriate, balancing up the risk and opportunity from what we see from now to the end of the quarter.

Speaker Change: Even post-Q2, we mentioned its challenge, and it remains as such.

Speaker Change: because of this point around close rates and going into Q4, you know, the way in which we're thinking about this is, and I'll take the piece around guidance, the update to the high end of our guidance

Speaker Change: takes into account how the deals we landed in Q3 will show up in Q4 ARR.

Speaker Change: It also factors in the close rates we expect in Q4, based on the further maturation of deals in our pipeline, and our view of how those will impact Q4 end-quarter ARR. So, that guidance range we feel is appropriate, balancing up the risk and opportunity from what we see from now to the end of the quarter.

Joe Brewing: Our next question comes from a line of Joe Brewing with Baird. Your line is open. Great. Thanks for taking my question.

Operator: In our view, how those will impact Q4 in-quarter ARR. So that guidance range we feel is appropriate, balancing up the risk and opportunity from what we see from now to the end of the quarter. Our next question comes from the line of Joe Vruwink with Baird. Your line is open. Great, thanks for taking my question. Neil, maybe you can expand a bit on what you've observed at PTC and also maybe feedback from customers where ultimately operating a flatter work structure and, you know, taking on the roles and responsibilities you outlined at the start where that makes the most sense and you see an opportunity to actually move results forward.

Speaker Change: Our next question comes from the line of Joe Vruwink with Baird. Your line is open.

Neil Barua: Neil, maybe you can expand a bit on what you've observed that TTC and also maybe feedback from customers where ultimately operating a flatter work structure and, you know, taking on the roles and responsibilities you outlined at the start where that makes the most sense. And you see an opportunity to actually move, move results forward.

Joseph D. Vruwink: Great, thanks for taking my question. Neil, maybe you can expand a bit on what you've observed at PTC and also maybe feedback from customers where

Speaker Change: Ultimately, operating a flatter org structure and taking on the roles and responsibilities you outlined at the start, where that makes the most sense and you see an opportunity to actually move results forward.

Neil Barua: Sure. Um, a consistent theme, uh, from my prior calls around. Where are we putting the wood? Behind which arrows?

Neil Barua: Sure. A consistent theme from my prior calls around where are we putting wood behind which arrows. And that is driven by our belief around where we could drive the most customer value and where we have the highest right to win.

Neil Barua: Sure. A consistent theme from my prior calls around

Neil Barua: And that is driven by our belief around where we can drive the most customer value and where we have the highest right to win. And so that's how we set forward the five priorities of the company that I've been consistently talking about for the last couple of quarters. We did some repositioning of product and R&D capabilities in IoT AR back to core products to reinforce those priorities and deliver a better outcome on those priorities over the next number of years.

Neil Barua: Where are we putting wood behind which arrows? And that is driven by our belief around where we could drive the most customer value and where we have the highest right to win. And so that's how we set forward the five priorities of the company that I've been consistently talking about for the last couple quarters.

Neil Barua: And so that's how we set forward the fire priorities of the company that I've been consistently talking about for the last couple of quarters. R.R. We did some re-positioning of products and R&D capabilities in IOTAR back to core products to reinforce those priorities to deliver a better outcome of those priorities over the next number of years.

Neil Barua: We did some repositioning of product and R&D capabilities in IoT AR back to core products to reinforce those priorities, to deliver a better outcome of those priorities over the next number of years.

Neil Barua: The same is happening now across all these other functions, in particular now the focuses in around the go-to-market function by which it's not around efficiency. It is around are we using every person we have in this company? Effectively towards those five priorities, and so we're working through making sure whoever is targeting PLM expansion capabilities is adequately enabled, is adequately insented, is structured in our go-to-market model by which they can be successful that delivers value to the customer and returns to the company. And so that's what we're working through. And the other stones that we're kind of working through is because we've set these priorities very clearly, we're all really energized by these priorities because we're seeing, to your question, a lot of customer demand and pull from it.

Neil Barua: The same is happening now across all these other functions, and in particular now, the focus is around the go-to-market function, by which it's not around efficiency; it is around are we using every person we have in this company effectively towards those five priorities.

Neil Barua: The same is happening now across all these other functions, in particular now the focus is around the go-to-market function, by which it's not around efficiency, it is around are we using every person we have in this company effectively towards those five priorities.

Neil Barua: And so we're working through making sure whoever is targeting PLM expansion capabilities is adequately enabled, is adequately incented, and is structured in our go-to-market model by which they can be successful, which delivers value to the customer and returns to the company. And so that's what we're working on. And the other stones that we're kind of working through are because we've set these priorities very clearly, and we're all really energized by these priorities because we're seeing, to your question, a lot of customer demand and pull from it.

Neil Barua: And so we're working through making sure whoever

Neil Barua: is targeting PLM expansion capabilities is adequately enabled, is adequately incented, is structured in our go-to-market model by which they can be successful that delivers value to the customer and returns to the company. And so that's what we're working through.

Neil Barua: And the other stones that we're kind of working through is

Neil Barua: Because we've set these priorities very clearly, we're all really energized by these priorities because we're seeing, to your question, a lot of customer demand and pull from it, we're looking at anything we're spending money in that is

Neil Barua: We're looking at anything we're spending money in that can be better utilized using that same dollar on things that could accelerate those priorities. Whether it be greater R&D capabilities, which we've been doing, whether it be making sure we position the rest of your organization to serve those customers towards those five priorities. So that's how we're looking at it currently, and again, much work to do early innings, and heavy lifting will continue into 2025.

Neil Barua: We're looking at anything we're spending money on that can be better utilized using that same dollar on things that could accelerate those priorities, whether it be greater R&D capabilities, which we've been doing, or making sure we position the rest of the organization to serve those customers toward those five priorities. So that's how we're looking at it currently. And again, much work to do; the early innings and heavy lifting will continue into 2025. Thank you.

Neil Barua: can be better utilized using that same dollar on things that could accelerate those priorities.

Neil Barua: Whether it be greater R&D capabilities, which we've been doing it, whether it be making sure we position the rest of the organization to serve those customers towards those five priorities. So that's that's how we're looking at it currently, and again, much work to do. Early innings and heavy lifting will continue into 2025.

Stephen Tucson: Thank you. Our next question comes from a line of Stephen Tucson with JP Morgan. Your line is open. Hey guys, good evening. How are you? So obviously a lot of different cross-currents here in the macro, whether it's the kind of budget questions around AI and things like that. Obviously, your key competitor had quite a significant miss; they talked about geopolitics a bit. I guess you guys aren't seeing that news reminders of maybe how you differ from F so and maybe what makes your model a bit more resilient perhaps, and are you seeing kind of geopolitical issues or when you talk about the macro is it something just a bit more I guess.

Operator: Our next question comes from the line of Stephen Tusa with J.P. Morgan, your line: Hey guys, good evening. How are you? So obviously, a lot of different cross currents here in the macro, whether it's the kind of budget questions around AI and things like that. Obviously, your key competitor had quite a significant miss. They talked about geopolitics a bit.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Stephen Tusa with J.P. Morgan. Your line is open.

Charles Stephen Tusa: Hey guys, good evening, how are you?

Speaker Change: [inaudible]

Charles Stephen Tusa: So, obviously, a lot of different cross-currents here in the macro, whether it's the kind of budget questions around AI and things like that.

Speaker Change: competitor had quite a significant miss. They talked about geopolitics a bit.

Neil Barua: I guess you guys aren't seeing that. Can you just remind us of maybe how you differ from Def So and maybe what makes your model a bit more resilient, perhaps? And are you seeing any kind of geopolitical issues?

Speaker Change: I guess you guys aren't seeing that. Can you just remind us of...

Speaker Change: Maybe how you differ from ESO and maybe what makes your model a bit more resilient perhaps and are you seeing kind of geopolitical issues or when you talk about the macro is it something just a bit more I guess

Neil Barua: You know financially or business related to customers being a bit more cautious on budgets like we've been hearing for the last, you know, year and a half, two years.

Speaker Change: You know, financially or business related to customers being a bit more cautious on budgets like we've been hearing for the last, you know, year and a half, two years.

Neil Barua: Or when you talk about the macro, is it something just a bit more, I guess, financially or business-related to customers being a bit more cautious on budgets like we've been hearing for the last, you know, year and a half, two years? Sure. Good question. Look, from a PTC standpoint, again, I just want to keep reiterating this. We did not see any discernible change in trend, you know, among geographies and verticals.

Neil Barua: Good question. Look, from a PTC standpoint, again I just want to keep reiterating this: we did not see any discernible change in trend, you know, amongst geographies and verticals. You know, whatever our competitor mentioned, we didn't really see that same dynamic happen in that vertical at PTC. I'm not sure what we're doing different than them. In particular, but we didn't see that dynamic play out here; partly, you know, we've been very consistent around making sure everyone's clear, and the way we're actually operating is within a challenging sales environment. And we've been seeing that and not getting the head of our skis, thinking it's going to change.

Speaker Change: Sure, good question.

Speaker Change: Look, from a PTC standpoint, again I just want to keep reiterating this, we did not see any discernible change in trend, you know, amongst geographies and verticals.

Neil Barua: You know, whatever our competitor mentioned, we didn't really see that same dynamic happen in that vertical at PTC. I'm not sure what we're doing different than them in particular, but we didn't see that dynamic play out here. Partly, you know, we've been very consistent around making sure everyone is clear and the way we're actually operating is within a challenging sales environment. And we've been saying that and not getting ahead of our skis thinking it's going to change, but operating in that environment.

Speaker Change: Whatever our competitor mentioned, we didn't really see that same dynamic happen in that vertical at PTC. I'm not sure what we're doing different than them in particular, but we didn't see that dynamic play out here.

Speaker Change: Partly, you know, we've been very consistent around making sure everyone's clear and the way we're actually operating is within a challenging sales environment. And we've been seeing that and not getting ahead of our skis thinking it's going to change.

Neil Barua: But being operating under that environment, and I think that discipline with a great product portfolio, I think is differentiated across the industry with a movement towards building the business towards these five priorities that is more consistent to create the execution.

Neil Barua: And I think that discipline with a great product portfolio is differentiated across the industry with a movement towards building the business towards these five priorities that is more consistent in creating execution. And I think that's what Christian called is why I believe we're continuing to deliver the types of results we are and why Christian and I are looking at Q4 and making sure, with this growing pipeline, we continue to make sure we deliver on the commitments that we're making and drive customer value.

Speaker Change: But being, operating under that environment, and I think

Speaker Change: That discipline, with a great product portfolio, I think is differentiated across the industry.

Speaker Change: with a movement towards

Speaker Change: Building the business towards these five priorities.

Neil Barua: Question Christian called his why I believe we're continuing to deliver the types of results we are and why Christian and I are looking at Q4 and making sure with this growing pipeline we continue to make sure we deliver on the commitments that we're making and drive customer value. And then I guess just a follow up, a great answer first of all, but just the follow up, looking next year, obviously, you guys have pretty high confidence in, I guess, giving us a framework for next year in this environment. What would it, what kind of environment are we talking about to kind of get below the double digit range in ARR and then secondarily how close you guys to having the playbook ready to respond on the cash side, like you said, you would be able to in that environment.

Kristian: that is more consistent to create the execution Kristian called is why I believe we're continuing to deliver the types of results we are and why Kristian and I are looking at Q4 and making sure with this growing pipeline

Speaker Change: We continue to make sure we deliver on the commitments that we're making and drive customer value.

Neil Barua: And then, and then I guess just a follow-up. Great answer, first of all, but just the follow-up: looking at next year, obviously, you guys have pretty high confidence in giving us a framework for next year in this environment. What, what would it, what kind of environment are we talking about to kind of get below the double digit range in ARR? And then, secondarily, how close are you guys to having the playbook ready to respond on the cash side? Like you said, you would be able to in that environment.

Speaker Change: And then I guess just a follow-up.

Speaker Change: Great answer, first of all, but just the follow-up, looking at next year, obviously...

Speaker Change: You guys have pretty high confidence in, I guess, giving us a framework for next year in this environment. What kind of environment are we talking about to kind of get below the double-digit range in ARR and then secondarily, how close are you guys to having the playbook ready to respond on the cash side like you said you would be able to in that environment? I don't think we're going to like that type of...

Neil Barua: I don't think we're going to like that type of scenario. But like, it seems like your model is, is, is, you know, very defensive from this perspective, it'd take a lot to kind of drive you to that point. Just curious what the mindset is around defending the cash at this, Yeah, sure. I mean, here, again, I don't think we really want to get into the nitty gritty details of, you know, of the guidance for next year. As I said, we're still working through the through the detailed planning process. That said.

Neil Barua: I don't think we're going to like that type of scenario, but like it seems like your model is, is, is, you know, very defensive from this perspective to take a lot to kind of drive it to that point. Just curious what the mindset is around defending the cash at this stage. Yeah, sure, I mean, here, again, I don't think we really want to get into the nitty gritty details of, you know, of the guidance for next year. As I said, we're still working through the, through the detailed planning process. That said, you know, I think that we've seen our, we'll call it budgeting process, you know, play out here.

Speaker Change: scenario, but it seems like your model is very defensive from this perspective. It would take a lot to kind of drive it to that point. Just curious what the mindset is around defending the cash at this stage.

Speaker Change: You wanna start?

Speaker Change: [inaudible]

Kristian P. Talvitie: You know, I think that we've seen our, we'll call it, budgeting process, play out here, play out here this year. As we, as we've articulated, we start the year with a range of expected outcomes on the top line. We start the year with a, you know, a spend run rate. And as we progress through the year, as we get more comfortable, we will release more incremental funding, you know, into the system.

Speaker Change: You know, I think that we've seen our

Speaker Change: We'll call it budgeting process, you know, play out here, play out here this year, you know, as we, as we've articulated, we start the year with a range of expected outcomes on the top line.

Christian Teletia: Play out here this year, you know, as we, as we've articulated, we start the year with a range of expected outcomes on the top line. We start the year with, with a, you know, a spend run rate. And as we progress through the year, as we get more comfortable, we release more incremental funding, you know, into the system. So that's, that's how we try to gauge it, and we would continue to try to do that, and we're, you know, frankly, doing it right now already in preparation for next year, and that's how, that's how we're thinking about it.

Speaker Change: We start the year with a, you know, a spend run rate.

Speaker Change: And as we progress through the year, as we get more comfortable,

Speaker Change: We release more incremental funding into the system, so that's how we try to gauge it, and we would continue to try to do that, and we're frankly doing it right now.

Kristian P. Talvitie: So that's how we try to gauge it. And we would continue to try to do that. And we're, you know, frankly doing it right now, already in preparation for next year. And that's how, that's how we're thinking about it. So we're really talking about modulating incremental, incremental expense into next year and hopefully not putting ourselves in a situation where we've got to actually pare back expenses. Yeah, great. Okay. Great. Thanks for the detail.

Speaker Change: Already in preparation for for next year and that's how that's how we're thinking about it. So we're really talking about modulating incremental

Christian Teletia: So we're really talking about modulating incremental, incremental expense in the next year, and hopefully not putting ourselves in a situation where we've got to actually pair back expense.

Speaker Change: Incremental expense into next year and and hopefully not putting ourselves in a situation where we've where we've got to actually pare back expense.

Unknown Attendee: Great.

Unknown Attendee: Thanks for the detail.

Speaker Change: [inaudible]

Unknown Attendee: As a reminder, please let me yourself to one question only, and if you have an additional question, a question, please return to the queue.

Operator: As a reminder, please limit yourself to one question only, and if you have an additional question, please return to the queue. Our next question comes from the line of Adam Borg with Stifle. Your line is open.

Speaker Change: As a reminder, please limit yourself to one question only, and if you have an additional question, please return to the queue. Our next question comes from the line of Adam Borg with Stifle. Your line is open.

Adam Borg: Our next question comes from the line of Adam Borg with Stifel. Your line is open. Awesome, and thanks so much for taking the question.

Neil Barua: Awesome, and thanks so much for taking the question. Neil, maybe for you, it's great to hear the continued kind of turning over all the stones as you take a fresh look at the entire organization. How do we think about, especially as we think about, go to Mark.

Neil Barua: Neil, maybe for you, it's great to hear the continued kind of turning over all the stones if you take a fresh look at the entire organization. How do we think about, especially if we, so as we think about go to market and potential changes there, and how do we think about the potential risk of disruption from those changes in the near term and how is that contemplated in guidance. Thanks so much. Yeah, you know, one of the benefits of having been here now 18 months, maybe a little bit longer, is I've had the time to process, be part of the organization, to think through and observe part of a number of customer conversations, et cetera.

Adam Charles Borg: Awesome and thanks so much for taking the question. Neil, maybe for you it's great to hear the continued kind of turning over all the stones as we take a fresh look at the entire organization. How do we think about, especially as we think about go-to-market

Neil Barua: And how do we think about the potential risk of disruptions from those changes in the near term, and how is that contemplated in guidance? Thanks. Yeah, you know, one of the benefits of having been here now, for 18 months, maybe a little bit longer, is I've had the time to process, be part of the organization, think through and observe. I've been part of a number of customer conversations, etc. I've had a great transition process with Mike DiTullio, as I mentioned.

Speaker Change: and Unknown Speaker 10. How do we think about the potential risk of disruptions from those changes in the near term? And how is that contemplated in guidance? Thanks so much.

Neil Barua: Yeah, you know, one of the benefits of having been here now, 18 months, maybe a little bit longer, is I've had the time.

Speaker Change: to process, be part of the organization, to think through and observe. I'm part of a number of customer conversations, etc. I've had a great transition process with Mike DiTullio, as I mentioned.

Neil Barua: I've had a great transition process of my tutorial, as I mentioned. And I feel confident that my thoughtfulness, our thoughtfulness around what to change from a position of strength, not a positional weakness, is actually a very exciting thing for many people here at PTC to make sure we're enabling them to be successful. So they can't across these five priorities. So I actually believe that the work we're doing fundamentally is going to be a huge value to a lot of people here at PTC to unleash even greater work that they've been doing. And so, to that end, you know, these are going to be very intentional moves.

Speaker Change: And I feel confident that my thoughtfulness, our thoughtfulness around what to change from a position of strength

Adam Charles Borg: Not a positional weakness.

Adam Charles Borg: It's actually a very exciting thing for many people here at PTC to make sure we're enabling them to be as successful as they can across these five priorities. So I actually believe that the work we're doing fundamentally is going to be of huge value.

Neil Barua: So I actually believe that the work we're doing, fundamentally, is going to be of huge value to a lot of people here at PTC, to unleash even greater work that they've been doing. And so to that end, you know, these are going to be very intentional moves. I've done it a number of times in my career, and it's to drive more effectiveness.

Adam Charles Borg: to a lot of people here at PTC to unleash even greater work that they've been doing. And so to that end, you know, these are going to be very intentional moves.

Neil Barua: I've done it a number of times in my career, and it's the drive more effectiveness. And I feel really good about our ability to manage to these changes.

Adam Charles Borg: I've done it a number of times in my career, and it's to drive more effectiveness, and I feel really good about our ability to manage through these changes.

Kristian P. Talvitie: And I feel really good about our ability to manage through these changes. That's awesome. And maybe just a quick housekeeping question for Kristian, I know we lowered the top end of the ARR range by $20 billion. And I apologize if I missed it. I think last quarter, it was lowered due to some ARR contracts being renegotiated, more deferred ARR. Is that what we're talking about here? Or is there something

Unknown Attendee: James. That's awesome.

Christian Teletia: Maybe just a quick housekeeping for Christian. I know we lowered the top end of the ARR range by 20 billion. I apologize if I missed it. I think last quarter, it was lowered due to some ARR contracts being renegotiated with more deferred ARR. Is that what we're talking about here? Or is there something different? And I apologize if I missed it. Thanks again.

Kristian P. Talvitie: And I apologize if I missed it. Thanks. Yeah, no, there were no other changes to the deferred ARR like we talked about last quarter. This was simply reflecting, as Neil was saying earlier, how our Q3 results came in and the composition of those deals and how they roll into ARR and Q3 and Q4 and beyond, and the outlook, to the best of our ability, for Q4 as well, given the deals that are in play in the pipeline and expectations around what the composition of those deals is Our next question comes from the line of Joshua Tilton with Wolf Research. Your line, Hey guys, I actually kind of want to follow up on that last question. I want to ask it a little differently.

Speaker Change: That's awesome. Maybe just a quick housekeeping for Kristian. I know we lowered the top end of the ARR range by $20 billion, and I apologize if I missed it. I think last quarter it was lowered due to some ARR contracts being renegotiated, or more deferred ARR. Is that what we're talking about here, or is there something different? And I apologize if I missed it. Thanks again.

Christian Teletia: No, no other changes to the deferred ARR, like we talked about last quarter. This was simply reflecting, this is I think what Neil was saying earlier, reflecting how our Q3 results came in and the composition of those deals and how they roll into ARR and Q3 and Q4 and beyond. And the, you know, the outlook to the best of our ability for Q4 as well, given the deals that are in play and the pipeline and expectations around what the composition of those deals is going to look like as they materialize into ARR.

Speaker Change: Yeah, no, there were no other changes to the...

Speaker Change: Deferred ARR like we talked about last quarter. This was simply...

Speaker Change: This is what Neil was saying earlier, reflecting how our Q3 results came in and the composition of those deals and how they roll into ARR and Q3 and Q4 and beyond, and the outlook

Speaker Change: To the best of our ability for Q4 as well, given the deals that are in play in the pipeline and expectations around what the composition of those deals is going to look like as they materialize into ARR.

Joshua Totten: Our next question comes from the line of Joshua Totten with Wolf Research. Your line is open. Hey guys, I actually kind of want to follow up on that last question.

Speaker Change: and many more.

Speaker Change: Our next question comes from the line of Joshua Tilton with Wolf Research. Your line is open.

Operator: Kristian, I always appreciate your accounting teach-ins, and one of the things you emphasize is the relationship between ARR and free cash flow. And I guess if I look, free cash flow missed by $10 million in the quarter, and you're also lowering the midpoint to the full year ARR number by $10 million as well. Kind of implies that there was a $10 million deal or $10 million of ARR that should have landed this quarter and is no longer in the guidance. I guess, is that the right read? And if so, is that because the deal is going to close in later periods, or is this just you guys being? Any color there would be fine.

Joshua Totten: I want to ask you a different question. I always appreciate your cabin teaching, and one of the things you emphasize is kind of the relationship between ARR and free cash flow. And I guess if I look free cash flow missed by 10 million in the quarter, and you're also lowering the midpoint to the full year ARR number by 10 million as well. Kind of implies that there was a 10 million dollar deal or 10 million of ARR that should have landed this quarter, and it's no longer in the guidance. I guess is that the right read?

Joshua Alexander Tilton: Hey guys, I actually kind of want to follow up on that last question. I want to ask it a little differently. Kristian, I always appreciate your academy teaching and one of the things you emphasize is kind of the relationship between ARR and free cash flow.

Joshua Alexander Tilton: And I guess if I look, free cash flow missed by $10 million in the quarter, and you're also lowering the midpoints of the full-year ARR number by $10 million as well. Kind of implies that there was a $10 million deal or $10 million of ARR that should have landed this quarter and is no longer in the guidance.

Christian Teletia: And if so, is that because the deal is going to close in later periods, or is this just you guys being proven? Any color that would be great. Yes, sure.

Speaker Change: I guess, is that the right read? And if so, is that because the deal is going to close in later periods, or is this just you guys being prudent? Any color there would be great.

Kristian P. Talvitie: Yes, sure. It's a great question, Josh. No, and that is actually not the case at all.

Christian Teletia: It's a great question, Josh. No, and that actually is not the case at all. On free cash flow, is actually simply timing. You know, I mean here just being completely candid, we had a bunch of collections that were due in the last two days of the quarter. The last two days of the quarter happened to be a Saturday and Sunday. We were hopeful that we were going to get that cash in on Friday or before, but obviously customers have a contractual right to actually pay it, you know, the following week. And so, you know, that's what happened on the cash flow.

Speaker Change: Yes, sure. It's a great question, Josh. No, and that actually is not the case at all. On free cash flow, it's actually simply timing.

Kristian P. Talvitie: On free cash flow, it's actually simply time. I mean, here, just being completely candid, we had a bunch of collections that were due in the last two days of the quarter. The last two days of the quarter happened to be a Saturday and Sunday.

Speaker Change: You know, I mean, here, just being completely candid, we had a bunch of collections that were due in the last two days of the quarter. The last two days of the quarter happened to be a Saturday and Sunday.

Kristian P. Talvitie: We were hopeful that we were going to get that cash in on Friday or before, but obviously customers have a contractual right to actually pay it, you know, the following week, and uh, and so that's what happened with the cash flow. We were hopeful that we were going to get it the week before. We've now got that cash, so hence there's no change to the cash flow forecast for the year. That's the time. Super helpful, and just to confirm also, more of a, you know, clarification, I think as of heading into the second half, you guys still had 10 million more in deferred ARR in the balance this year versus last year. Is all 10 million of that remaining? Would some of that recognize this quarter?

Speaker Change: We were hopeful that we were going to get that cash in on Friday or before, but obviously customers have a contractual right to actually pay it the following week.

Christian Teletia: We were hopeful that we were going to get it on, you know, the week before. We've now got that cash, so hence there's no change to the cash flow forecast for the year. That's the timing issue.

Speaker Change: And so, you know, that's what happened on the cash flow. We were hopeful that we were going to get it on, you know, the week before. We've now got that cash, so hence there's no change to the cash flow forecast for the year.

Christian Teletia: Super helpful and just to confirm, also more of a clarification. I think as heading into the second half, you guys still had 10 million more in deferred ARR in the balance this year versus last year. Is all 10 million of that remaining, with some of that recognized this quarter? Can you just help us understand that? Yeah, it was about it. It was about half of it in last quarter and half of it this quarter. Sorry, let me half of it. I'll be more precise, half of it in Q3 and about half of it in Q3.

Speaker Change: That's the timing issue.

Speaker Change: Super helpful. And just to confirm also, more of a, you know, clarification, I think as of heading into the second half, you guys still had $10 million more in deferred ARR in the balance this year versus last year. Is all $10 million of that remaining? Would some of that recognize this quarter? Can you just help us understand that?

Kristian P. Talvitie: Can you just help us understand? Yeah, it was about half of it in the last quarter and half of it this quarter. Sorry.

Speaker Change: Yeah, it was about half of it in last quarter and half of it this quarter.

Kristian P. Talvitie: Half of it in, I'll be more precise, half of it in Q3 and about half of it in Q4. Super helpful. Thank you, Kristian. Our next question comes from the line of Saket Kalia.

Speaker Change: I'll be more precise, half of it in Q3 and about half of it in Q4.

Unknown Attendee: Superhello. Thank you, Frischel.

Saket Kalia: Our next question comes from the line of Saket Kalia with Barclays. Your line is open. Okay, great. Hey, Neil, hey, Christian, thanks for taking my question here. Neil, maybe maybe for you, it feels like close rates is one of, if not, maybe the major reason here for just the Revive A or R Guide. And so the question is, can we maybe talk about that metric, anecdotally, of course, for ServiceMax and CodeBeam across cell. I mean, I know the team really enabled PTC sellers to go after those opportunities this year. How is that sort of trended and how are you feeling about those businesses when you think about kind of close rates?

Operator: Barclays, your line is, Okay, great. Hey, Neil. Hey, Kristian.

Speaker Change: Our next question comes from the line of Saket Kalia with Barclays. Your line is open.

Neil Barua: Thanks for taking my question here. Neil, maybe maybe for you, it feels like close rates is is one of if not maybe the major reason here for just the the the revised ARR guide and so the the question is can we maybe talk about that metric anecdotally of course of course for for ServiceMax and CodeBeamer CrossSell I mean I know the team really enabled PTC sellers to go after those opportunities this year you know how is that sort of trended and kind of how are you feeling about those businesses when you think about kind of close, Yeah, let me let me make Let me make a piece of this clear around close, Our assumption going into Q4 about close rates and looking at a deal by deal maturation of the pipeline is No different than our view of close rates that have been evident for the most part in general for the last, The dynamic of what we're doing on Q4 right now in terms of guidance, how we think about it is, we now know what happened in Q3.

Saket Kalia: Okay, great. Hey, Neil. Hey, Kristian. Thanks for taking my question here.

Saket Kalia: Neil, maybe for you, it feels like close rates is one of, if not maybe the major reason here for just the revised ARR guide.

Speaker Change: And so the question is, can we maybe talk about that metric, anecdotally of course, for ServiceMax and CodeBeamer CrossSell? I mean, I know the team really enabled PTC sellers to go after those opportunities this year.

Speaker Change: You know, how is that sort of trended and kind of how are you feeling about those businesses when you think about kind of closed rates?

Neil Barua: Yeah, let me, let me make, let me make a piece of this clear around close rates. Our assumption going into Q4 about close rates and looking at a deal by deal maturation of the pipeline is no different than our view of close rates that have been evident for the most part in general for last few years. The dynamic of what we're doing on Q4 right now in terms of guidance, how we think about it, is we now know what happened in Q3. We now know the composition, meaning how the deals that we close in Q3 are going to actually go into ARR, whether they all came into Q3 or whether part of it goes into Q4 ARR or part of it goes into the next subsequent years.

Speaker Change: Yeah, let me, let me make, um...

Speaker Change: Let me make a piece of this clear around close rates.

Speaker Change: Our assumption going into Q4 about close rates and looking at a deal-by-deal maturation of the pipeline is

Speaker Change: No different than our view of close rates that have been evident for the most part in general for the last few years.

Speaker Change: The dynamic of what we're doing on Q4 right now in terms of guidance, how we think about it is, we now know what happened in Q3.

Neil Barua: We now know the composition, meaning how the deals that we closed in Q3 are going to actually go into ARR, whether they all came into Q3 or whether part of it went into Q4 ARR or part of it went into the next subsequent years. So now we have that data.

Speaker Change: We now know the composition, meaning how the deals that we closed in Q3 are going to actually go into ARR, whether they all came into Q3 or whether part of it goes into Q4 ARR or part of it goes into the next subsequent years. So now we have that data point.

Neil Barua: So now we have that data point. We have now made the assessment around all the deals that are maturing the pipeline, and the close rates is consistent with what we've seen prior quarters and years. So it's continued challenge on the close rate, not worse, not better. And we've made assumptions around how that ARR, when it closes, actually comes into ARR. And that's the area where the precision is difficult for the company given, is it going to be a deal that ramps over time? Is it all going to come into one quarter? And looking at all those factors, we determined the guidance range that we put with the risk and option is balanced.

Neil Barua: We have now made the assessment around all the deals that are maturing in the pipeline, and the close rate is consistent with what we've seen in previous quarters and years. So it's a continued challenge with the close rate, not worse, not better. And we've made assumptions around how that ARR, when it closes, actually comes into ARR. And that's the area where precision is difficult for the company, given is it going to be a deal that ramps over time? Is it all going to come down to one quarter?

Speaker Change: We have now made the assessment around all the deals that are maturing in the pipeline and the close rates.

Speaker Change: It's consistent with what we've seen prior quarters and years.

Speaker Change: So it's a continued challenge on the close rate, not worse, not better, and we've made assumptions around how that ARR, when it closes,

Speaker Change: actually comes into ARR.

Speaker Change: And that's the area.

Speaker Change: Where the precision is difficult for the company given, is it going to be a deal that ramps over time? Is it all going to come into one quarter?

Speaker Change: And looking at all those factors, we determined the guidance range that we put with the risk and opportunities balance.

Neil Barua: In terms of Code Beamer and Service Max socket, what I will say anecdotally is, we are continuing to be pleased, excited about the build up and momentum of Code Beamer and the interest and reception we're getting from the market, the reception that we're getting from customers that are testing out like the example that I gave to that are thinking about broadening the expansion of the utilization across the company. And on Service Max, the business is starting to work in terms of continued build up of really good pipeline, as well as close that happened for the last year today through Q3.

Neil Barua: And looking at all those factors, we determined the guidance range that we put on the risk and opportunities balance. In terms of CodeBeamer and ServiceVac, Saket, what I will say anecdotally is... We are continuing to be pleased. I'm excited about the buildup and momentum of CodeBeamer and the interest and reception we're getting from the market. The reception that we're getting from customers that are testing it out, like the example that I gave you, that are thinking about broadening the expansion of the utilization across their company at CodeBeamer.

Saket Kalia: In terms of CodeBeamer and ServiceVac, Saket, what I will say anecdotally is...

Saket Kalia: We are continuing to be pleased

Saket Kalia: Excited about the...

Saket Kalia: Build-up and momentum of CodeBeamer and the interest and reception we're getting from the market the reception that we're getting from customers that are testing it out like the example that I gave to you that are thinking about broadening the expansion of the utilization across their company CodeBeamer and on ServiceMax

Neil Barua: And on ServiceMax, the business is starting to work in terms of continued buildup of really good pipeline, as well as close that happened for the last year to date through Q3, and quite a lot of very interesting deals that we're assuming will close in Q4 to allow for a really strong jump off into next year that we will make sure we continue. So, on both fronts, all systems are go, and we're very pleased so far with the momentum. We still have to close and continue that momentum to sustain it over the next number of years. I got it.

Saket Kalia: The business is starting to work in terms of continued build-up of really good pipeline, as well as close that happened for the last...

Neil Barua: And quite a lot of very interesting deals that we're assuming will close in Q4 to allow for a really strong jump off into next year that we will make sure we continue. So on both fronts, all systems go, and we're very pleased so far with the momentum. We still have to close and continue that momentum and sustain over the next number. Thank you for your years. Got it. That's really helpful. Thanks, guys.

Neil Barua: Unknown Attendee Year to date through Q3 and quite a lot of very interesting deals that we're assuming will close

Saket Kalia: in Q4 to allow for a really strong jump off into next year that we will make sure we continue. So on both fronts,

Saket Kalia: All systems go, and we're very pleased so far with the momentum. We still have to close and continue that momentum and sustain it over the next number of years.

Operator: That's really helpful. Thanks, guys. Our next question comes from the line of Jason Celino with KeyBank Capital Markets. Your line: Hey, thanks for fitting me in. How are you getting on?

Speaker Change: Got it, that's really helpful, thanks guys.

Jason Celino: Our next question comes from the line of Jason Celino with KeyBait in Capital Markets. Your line is open. Hey, thanks for fitting me in. How are you baking in, well, let me rephrase, your customers, you know, decision making, whether it's close race or pipeline or whether they want to expand. How are they baking in the US elections? And in that process, I mean, you serve some industries like automotive and aerospace and defense that, you know, are sensitive to that. So, and then how are you baking that into the guidance framework, if at all.

Speaker Change: and many more.

Speaker Change: Our next question comes from the line of Jason Celino with KeyBank Capital Markets. Your line is open.

Operator: Well, let me rephrase it, you know, are sensitive to that. So and then how are you incorporating that into the guidance framework, if at all? Yeah, hey Jason, it's the first time in my career where I've been spending so much time with executives at customers and across the world, and they ask me who's going to win the election in the U.S. It's a consistent and quite a confusing time for everyone around what happens in the U.S. That being said, I think for the most part, customers are understanding that whoever gets put in office, a lot of things don't dramatically change depending on the composition of what happens across all different constituencies in the U.S. election.

Jason Vincent Celino: Hey, thanks for fitting me in. How are you baking in...well, let me rephrase.

Speaker Change #105: your customers you know decision-making whether it's

Jason Vincent Celino: Closed rates or pipeline or whether they want to expand.

Speaker Change: How are they baking in the U.S. election into that process?

Speaker Change: industries like automotive and aerospace and defense that, you know, are sensitive to that. So, and then how are you baking that into the guidance framework, if at all? Thank you.

Neil Barua: Thank you. Yeah, hey, Jason, it's the first time in my career where I've been spending so much time with executives at customers and across the world, and they asked me who's going to win the election in the US. It's a, it's a consistent and quite a confusing time for everyone around what happens to the US. That being said, I think for the most part, customers are understanding that whoever gets put in the office. A lot of things don't dramatically change, depending on the composition. What happens across all different constituents of the US election. And so part of what we're seeing and part of what we're continuing to assume and hearing, most importantly for our customers, is we got to get on with digital transformation, regardless of if this person's office or that person's office, because we are not becoming competitive.

Speaker Change: I think for the most part, customers are understanding that whoever gets put in the office

Operator: And so part of what we're seeing and part of what we're continuing to assume and hear, most importantly for our customers, is we have got to get on with digital transformation regardless of if this person's in office or that person's in office because we are not becoming competitive if we can deliver products faster with better quality and a more sustainable cost structure given all the things that are happening around the world. I will say that geopolitics, the environment, uncertainty, and wars have been consistent for the last number of years, which is why we continue to say we've not said that the environment's getting better.

Speaker Change: depending on the composition, what happens.

Speaker Change: across all different constituents of the U.S. election.

Speaker Change #103: Part of what we're seeing and part of what we're continuing to assume

Speaker Change: We've got to get on with digital transformation.

Speaker Change: Regardless of if this person's in office or that person's in office, because...

Neil Barua: If we can deliver products faster with better quality and a more sustainable cost structure, given all the things that are happening around the world, I will say that geopolitics, the environment, the uncertainty, and wars have been consistent for the last number of years, which is why we continue to say we've not said that the environment's getting better. We don't believe it's getting worse based on this, and we're going to navigate through this time period, and we've sought through that in the way in which we set the guidance here. Perfect. Thanks, Neil.

Speaker Change: We are not becoming competitive. If we can deliver products faster, with better quality, and a more sustainable cost structure, given all the things that are happening around the world, I will say that geopolitics

Speaker Change: The Environment, The Uncertainty, Wars.

Speaker Change: have been consistent for the last number of years, which is why...

Neil Barua: We don't believe it's getting worse based on this, and we're going to navigate through this time period, and we've thought through that in the way in which we set the guidance. Perfect. Thanks, Neil. Very helpful. Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is open. Hey guys, it's Mike Richards on for Matt.

Speaker Change: We continue to say we've not said that the environment is getting better, we don't believe it's getting worse based on this, and we're going to navigate through this time period and we've thought through that in the way in which we set the guidance here.

Unknown Attendee: Very helpful.

Matthew Hedberg: Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is open.

Speaker Change: Perfect. Thanks, Neil. Very helpful.

Speaker Change #106: Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is open.

Unknown Attendee: Yeah, guys, it's Mike Richards on from Matt. Thanks for taking the question. So appreciate the early look into 2025. So maybe how should we be thinking about the drivers of that low double-digit growth, and how that sort of evolves from this year as it pertains to the five focus areas, and even acknowledging that it's a decade-long journey for SAS, maybe how that might contribute more to growth as we move forward. Thanks.

Operator: Thanks for taking the question. I so appreciate the early look into 2025. So maybe how should we be thinking about the drivers of that low double-digit growth and how that sort of evolves from this year as it relates to the five focus areas, and even acknowledging that it's a decade-long journey for SAS, maybe how that might, you know, contribute more to growth as we move forward. Thanks. Yeah, again, I mean, I think we'll get into providing more details when we give the official Fiscal 25 guidance.

Speaker Change: Hey guys, it's Mike Richards on for Matt. Thanks for taking the question.

Mike Richards: So I appreciate the early look into 2025. So maybe how should we be thinking about the drivers of that low double-digit growth and how that sort of evolves from this year as it pertains to the five focus areas and even acknowledging that it's a decade-long journey for SAS, maybe how that might, you know, contribute more to growth as we move forward. Thanks.

Unknown Attendee: Yeah, again, I mean, I think we'll get into providing more details when we give the official fiscal 25 guidance next quarter.

Speaker Change: Yeah, again, I mean, I think we'll get into providing more details.

Speaker Change: When we give the official fiscal 25 guidance.

Speaker Change: next quarter.

Jay Vleeschhouwer: Our next question comes from the line of J. Flea Shower with Griffin Securities. Thank you. Good evening. Neil, a question: one of our observations about your largest market historically, and then with the CAD market, is that over the last year, the share shifting that we have seen in the prior few years, which worked out to your benefit, has somewhat abated; in other words, share seems one for stable of late in that market. If it should turn out that the CAD market becomes increasingly competitive, how do you think about your competitive responses, perhaps in pricing or packaging or some other means.

Kristian P. Talvitie: Next quarter, our next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Thank you. Good evening.

Speaker Change: Our next question comes from the line of Jay Vleeschhouwer with Griffin Securities.

Operator: Neil, Kristian, one of our observations about your largest market historically, namely the CAD market, is that over the last year, the share shifting that we had seen in the prior few years, which worked out to your benefit, has somewhat abated. In other words, share seems much more stable of late in that market. If it should turn out that the CAD market becomes increasingly competitive, how do you think about your competitive responses, perhaps in pricing or packaging or some other means?

Jay Vleeschhouwer: Thank you, good evening. Neil, Kristian, one of our observations about your largest market historically and then with the CAD market

Speaker Change: How do you think about your competitive responses, perhaps in pricing or packaging or some other means? And again, if it were to become more competitive, how might that affect your broader cross-selling initiatives or ability to close cross-selling?

Operator: And again, if it were to become more competitive, how might that affect your broader cross-selling initiatives or ability to close cross-selling? And then, Neil, I liked your comments on the internal stone turning. Could you elaborate on the R&D changes that you're making, particularly in terms of the common platform that you've been working on, namely Atlas, which we frankly have not heard a good deal about lately? Thank you.

Jay Vleeschhouwer: And again, if it were to become more competitive, how might that affect your broader cross selling initiatives or ability to close cross selling.

Jay Vleeschhouwer: And, in secondarily, Neil, I'd like your comments on the internal stone turning. Could you elaborate on the R&D changes that you're making, particularly in terms of the common platform that you've been working on, namely Atlas, which we frankly have not heard a good deal about lately.

Speaker Change: And secondarily, Neil, I liked your comments on the internal stone turning.

Neil Barua: Could you elaborate on the R&D changes that you're making, particularly in terms of the common platform that you've been working on, namely Atlas, which we frankly have not heard a good deal about lately. Thank you.

Neil Barua: Matthew. Sure, you know, on the first part on, on CAD, we have two awesome ways in which we're addressing the market. As you know, Jay, we've got Onshape, the only cloud native CAD application, and we got Creole, which is awesome as you know. And so those two together, we feel, have impeded this. I am not talking about on shape. It's a great part of our business building momentum. We feel very good about it, competitive positioning. It's starting to scale. I will talk about it when it has a meaningful impact at an aggregate level to the financial of the business.

Neil Barua: Sure, you know, on the first part about CAD, we have two awesome ways in which we're addressing the market. As you know, Jay, we've got Onshape, the industry's only cloud-native Cat Application, and we got Creo, which is awesome, as you know. And so those two together, we feel have competitiveness. I am not talking about Onshape.

Speaker Change: We have two awesome ways in which we're addressing the market. As you know, Jay, we've got Onshape.

Speaker Change: Industries Only, Cloud Native, CAD Application, and we got Creo, which is awesome, as you know. And so, those two together we feel have competitiveness.

Neil Barua: It's a great part of our business, building momentum. We feel very good about our competitive positioning. It's starting to scale.

Speaker Change #107: I am not talking about Onshape. It's a great part of our business.

Speaker Change: Building momentum.

Speaker Change: We feel very good about it, competitive positioning.

Speaker Change: It's starting to scale. I will talk about it when it has a meaningful impact at an aggregate level to the financials of the business. But strategically, we continue to make sure our chips are being placed to ensure that Onshape is successful against

Neil Barua: But strategically, we continue to make sure our chips are being placed to ensure that Onshape is successful against, you know, some of the other solutions are out there from our competitors. And then you got Creole, which is, you know, a very strong tool. And our belief is the connection of Creole to Windshield and ultimately Code Beamer, the three together is a very strong value proposition for many customers thinking about how they think about the digital threat. So, Jay, I would say on the CAD business, we're ready. We're competing. We're in several different dynamics of deals that might cause shareships; might not, as you know, it's not an easy business to do shareships.

Speaker Change: and some of the other solutions that are out there from our competitors. And then you've got Creo, which is a very strong tool, and our belief is...

Neil Barua: I will talk about it when it has a meaningful impact at an aggregate level on the financials of the business. But strategically, we continue to make sure our chips are being placed to ensure that Onshape is successful against, you know, some of the other solutions that are out there from our competitors. And then you have Creo, which is, you know, a very strong tool. And our belief is the connection of Creo to Windchill and ultimately CodeBeamer, the three together, is a very strong value proposition for many customers thinking about how they think about the digital threat.

Speaker Change: The connection of Creo to Windchill and ultimately CodeBeamer, the three together, is a very strong value proposition for many customers thinking about how they think about the digital threat, so

Speaker Change: Jay, I would say in the CAD business, we're

Jay Vleeschhouwer: We're ready, we're competing, we're in several different dynamics of deals that might cause share shifts, might not. As you know, it's not an easy business to do share shifts, but we believe we have a very comprehensive offering on both fronts.

Neil Barua: So, Jay, I would say in the CAD business, we're, we're ready, we're competing, we're in several different dynamics of deals that might cause share shifts, might not. As you know, it's not an easy business to do share shifts. But we believe we have a very comprehensive offering on both fronts, an industry-leading scale player in Creo and Onshape, which is starting to, you know, hit their stride here, and we're going to continue to focus on it.

Neil Barua: But we believe we have a very comprehensive offering on both fronts, industry leading scale player and Creole and on shape, which is starting to, you know, hit their, hit their stride here.

Speaker Change: Industry-leading scale player in Creo, and Onshape, which is...

Neil Barua: And we're going to continue to focus in on it on your point around turning over stones on R&D. What I'll say is we're focusing in particularly on go-to-market and G&A. We're making sure on R&D, we are focused in on making sure the team is aligned to deliver on the roadmap. Every single one of our customers, Jay, is saying, "We love your products." We love where you're going in terms of building feature functionality, scalability of those products. Just do it. And so, job number one for the R&D team is keep doing that. And, you know, do it with precision, energy, because our customers need it.

Speaker Change: Starting to, you know, hit their stride here and we're going to continue to focus in on it.

Speaker Change: On your point around turning over stones on R&D, what I'll say is we're focusing in particularly on go-to-market

Neil Barua: On your point around turning over stones on R&D, what I'll say is, we're focusing in, particularly on go-to-market and G&A, we're making sure that on R&D, we are focused on making sure the team is aligned to deliver on the roadmap. Every single one of our customers, Jay Jay, Jay is saying, "We love your products, I love where you're going in terms of building feature functionality Just do it!

Speaker Change: and Gina. We're making sure on R&D, we are focused in on making sure the team is aligned to deliver on the roadmap. Every single one of our customers, Jay is saying, we love your products.

Jay: We love where you're going in terms of building feature functionality.

Neil Barua: And so, job number one for the R&D team is to keep doing that. And, you know, do it with precision and energy because our customers need it. So that's number one.

Jay: Scalability of those products.

Jay: Just do it. And so job number one for the R&D team is keep doing that. And, you know, do it with precision, energy, because our customers need it. So that's number one, including, by the way, the Atlas team, because that is a fundamental layer by which we have the ability to offer our SaaS offerings.

Neil Barua: Including, by the way, the Atlas team, because that is a fundamental layer by which we have the ability to offer our SaaS offerings and, two, continue to build innovative offerings. We're continuing to build ways in which we can add generative AI to our products. We're continuing to do so – we just released an awesome integration of ServiceMax to Windchill on time with great quality on July 11th this month. We have another release of ServiceMax that now allows ServiceMax to be sold alongside Windchill in the federal space. So, we're continuing to build some of these innovations, including with CodeBeamer, Windchill, and Creo and Onshape to make sure we're at the best in class here.

Neil Barua: So that's number one, including, by the way, the Atlas team, because that is a fundamental layer by which we have the ability to offer our SaaS offerings. And two, continue to build innovative offerings. We're continuing to build ways in which we can add, generate AI into our products. We're continuing to do, we just released an awesome integration of Service Max to Winchill on time with great quality on July 11th of this month. We have another release of a Service Max ability to now have Service Max able to be sold alongside Winchill in the federal space.

Neil Barua: I'll pause there. Very good. Thank you both. Our next question comes from the line of Clark Jeffries with Piper Sandler.

Jay: And two, continue to build innovative offerings, or continue to build ways in which we could add generative AI into our products.

Jay: We're continuing to do, we just released an awesome integration of ServiceMax to Windchill on time.

Jay: with great quality on July 11th of this month.

Jay: We have another release of a ServiceMax ability to now have ServiceMax...

Neil Barua: So, we're continuing to build some of these innovations, including with Code Beamer, Windchill, and CREO and Onshape, to make sure, you know, we're at the best in class here.

Jay: Able to be sold alongside Windchill in the federal space, so we're continuing to build some of these innovations including with CodeBeamer, Windchill and Creo and Onshape to make sure, you know, we're at the best in class here. I'll pause there.

Unknown Attendee: I'll pause there. Very good.

Unknown Attendee: Thank you both.

Clark Jeffries: Our next question comes from the line of Clark Jeffries with Piper Sandler. Your line is open. Hello. Thank you for taking the question.

Speaker Change: Very good. Thank you both.

Operator: Your line is open. Hello. Question, I wanted to ask Kristian, you know, we're asking a lot of questions here about close rates and pipeline, but maybe going back to that framework that you've said around ARR. AARP.

Speaker Change #100: Our next question comes from the line of Clark Jeffries with Piper Sandler. Your line is open.

Christian Teletia: I wanted to ask Christian, you know, we're asking a lot of questions here about close rates and pipeline, but maybe going back to that framework that you've sat around ARR and what you need to believe on a sequential ARR basis. You know, I just wanted to maybe have the discussion on, you know, in relation to that 85 for Q4, you know, you called out the 5 million related to some of those existing contracts. But what is the percentage in that 85 that's going to come from uplift or pricing, you know, drivers that are relatively in hand versus, you know, new sales or upsells that might be more sensitive to execution.

William Clarke Jeffries: Hello, thank you for taking the question. I wanted to ask Kristian, you know, we're asking a lot of questions here about close rates and pipeline, but maybe going back to that framework that you've said around ARR and what you need to believe on a sequential ARR basis.

Operator: You know, I just wanted to maybe have a discussion on, you know, in relation to that 85 for Q4. You called out the five million related... What is the percentage of that 85 that's going to come from uplift or price change? drivers that are relatively in hand.

Speaker Change: You know, I just wanted to maybe have the discussion on, you know, in relation to that 85 for Q4.

Speaker Change: You know, you called out the $5 million related to some of those existing contracts, but what is the percentage in that $85 million that's going to come from uplift or pricing, you know, drivers that are relatively in hand versus

Speaker Change: You know, new sales or upsells that might be more sensitive to execution.

Christian Teletia: Thank you.

Speaker Change: Thank you.

Kristian P. Talvitie: Um, yes, sure. So I guess we could take a stab at it. And I think I would think about it in a few different, you know, buckets.

Christian Teletia: Yes, sure. So I guess we could take a stab at it. I think I would think about it in a few different, you know, buckets. There is some benefit from pricing, as you know. You know, we tend to be pretty customer-friendly on that front, but there's certainly some benefit from that. I would say consistent with what's been in the past couple of years. You know, then I would probably start moving up this back and thinking about, you know, the channel. The channel has been a pretty consistent performer, you know, really for a number of years now.

Speaker Change #101: Yes, sure, so I guess we could take a stab at it, and I think I would think about it in a few different buckets.

Kristian P. Talvitie: There is... There is some benefit from pricing. As you know, we tend to be pretty customer-friendly on that front, but there's certainly some benefit from that. I would say it's consistent with what it has been in the past couple of years.

Speaker Change: There is...

Speaker Change: There is some benefit from pricing as you know, you know, we tend to be pretty

Speaker Change: Customer Friendly.

Speaker Change: on that front, but there's certainly some benefit from that. I would say consistent with what's been in the past couple of years.

Unknown Attendee: Unknown Attendee Unknown Attendee Unknown Attendee, Thank you. I will now hand the call back over to Neil Barua for closing remarks. Thank you everyone for joining us today. Here's what's ahead specific to investor conferences: August 20th, Steve Dirteen. Our CTO will attend the Rosenblatt Virtual Tech Summit Conference; September 4th, Kristian will be at the Citi Global Tech Conference in New York.

Speaker Change: you know then I would probably start moving up this back and thinking about you know the channel the channel has been a pretty consistent performer

Christian Teletia: And we haven't really seen any meaningful changes in one direction or the other. You know, that would that would indicate a change in the trend there. So that gives us some level of comfort. Then I would move up also more into our kind of base business and, you know, base transactions. And again, you know, the kind of volumes that we've seen there, been pretty consistent.

Speaker Change: You know, really for a number of years now, and we haven't really seen any meaningful changes in one direction or the other.

Speaker Change: You know, that would indicate a change in the trend there, so that gives us some level of comfort.

Speaker Change: Then I would move up also more into our kind of space business and, you know,

Jay: Based Transactions

Jay: And again, you know, the kind of volumes that we've seen there have been pretty consistent.

Christian Teletia: And then lastly, you get to the, you know, the large deals, and that's really where the volatility is in any, you know, in any given quarter. And of course, it's also those large deals where you see the other dynamics come into play. Not only, you know, is it going to close in the quarter? But if it closes, how much of it's in quarter start? Is it a ramp deal? Is it all starting, you know, in the quarter, etc.? And that's the part that's on a quarter-by-quarter basis difficult to, you know, difficult to predict with a high degree of certainty.

Jay: And then lastly, you get to the, you know, the large deals and that's really where the volatility is in any, you know, in any given quarter. And of course, it's also those large deals where you see the other dynamics come into play. Not only...

Jay: You know, is it going to close in the quarter? But if it closes, how much of its in-quarter start? Is it a ramp deal? Is it all starting in the quarter? Et cetera. And that's the part that's on a quarter by quarter basis difficult to predict with a high degree of certainty.

Unknown Attendee: Perfect.

Unknown Attendee: Thank you very much.

Neil Barua: Thank you.

Unknown Attendee: I will now hand the call back over to Neil Berua for closing remarks. Thank you, everyone, for joining us today. Here's what the head specific to investor conferences, August 20th: Steve, your team, our CTO will join the Rosenblatt virtual tech summit conference. Number four, Christian will be at the City Global Tech Conference in New York. On behalf of the team, thank you again. And we look forward to engaging with you. Thank you, everybody.

Speaker Change #104: Perfect. Thank you very much.

Speaker Change #104: Thank you. I will now hand the call back over to Neil Barua for closing remarks.

Neil Barua: Thank you everyone for joining us today. Here's what's ahead specific to investor conferences, August 20th, Steve Dertien.

Speaker Change: Our CTO will join the Rosenblatt Virtual Tech Summit Conference, September 4th, Kristian will be at the Citi Global Tech Conference in New York. On behalf of the team, thank you again, and we look forward to engaging with you.

Neil Barua: On behalf of the team, thank you again, and we look forward to engaging with you. Thanks, everybody. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now go ahead and do it.

Unknown Attendee: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now just...

Jay: Thanks, everybody.

Speaker Change #109: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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