Q1 2025 PTC Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to P. T 620, 25 first quarter conference call. During today's presentation, all parties will be in a listen only mode.

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to PTC's 2025 first quarter conference call. During today's presentation, all parties will be in a listen only mode.

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

Following the presentation the conference will be open for questions.

Matthew Shimao: I would now like to turn the call over to Matt Shimao, PTC's Head of Investor Relations. Please go ahead. Good afternoon. Thank you, Sarah, and welcome to PPC's 2025 First Quarter Conference.

I would now like to turn the call over to Matt Shamelle P. T. CS head of Investor Relations. Please go ahead.

Matt Shamelle: Good afternoon. Thank you Sarah and welcome to Ptc's 2025 first quarter conference call.

Matthew Shimao: On the call today are Neil Barua, Chief Executive Officer, and Kristian Talvitie, Chief Financial Today's conference call is being broadcast live through an audio webcast and the 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, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found in PTC's annual report on Form 10-K, Form 10-Q, and other filings with the U.S.

Neil Barbara: The call today are Neil Barbara Chief Executive Officer, and Kristian Talvitie, Chief Financial Officer, Today's conference call is being broadcast live audio webcast and a replay of the call will be available later today at Www PTC Dot com.

Neil Barbara: During this call PTC will make forward looking statements, including guidance as to future operating results because such statements deal with future events actual results may differ materially from those projected in the forward looking statements additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements can be found in Ptc's annual report on.

Neil Barbara: 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 todays date February five 2025, and PTC assumes no obligation to update these forward looking statements.

Matthew Shimao: 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, February 5, 2025, 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 presented in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website.

Speaker Change: During the call PTC will discuss non-GAAP financial measures. These non-GAAP measures, but not presented in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures. The most directly comparable GAAP measures can be found in today's press release made available on our website with that I'd like to turn the call over to <unk> Chief Executive.

Neil Barua: With that, I'd like to turn the call over to PTC's Chief Executive Officer, Neil Barua. Thank you, Matt, and good afternoon, everyone. PTC started fiscal 2025 as anticipated, with our first quarter results coming in slightly better than the guidance we provided, which contemplated a difficult macro and our go-to-market changes. The consistency of our ARR and free cash flow underscores the strength of our diversified business model and our disciplined focus on execution. While we continue to see a sluggish selling environment in Q1, I am pleased with the intensity we have internally to ensure we exit fiscal 2025 with increased momentum.

Neil Barbara: Officers Neil Barbara.

Neil Barbara: Thank you, Matt and good afternoon, everyone.

Neil Barbara: PTC starting in fiscal 2025 as anticipated with our first quarter results coming in slightly better than the guidance, we provided which contemplated a difficult macro and our go to market changes.

Neil Barbara: Insistency of our <unk> and free cash flow underscores the strength of our diversified business model and our disciplined focus on execution.

Neil Barbara: While we continue to see a sluggish selling environment in Q1, I am pleased with the intensity we have internally to ensure we exit fiscal 2025 with increased momentum.

Neil Barua: This includes the focus we have on our go-to-market transformation, as well as many important purposeful product releases. augmented by the work we are doing in AI. I'll share more on these key business initiatives during my comments today. For Fiscal 25, we've reiterated our ARR and free cash flow guidance ranges and we think the guidance we provide for Q2 and the full year is appropriate.

Neil Barbara: This includes the focus we have on our go to market transformation as well as many important purposeful product releases.

Neil Barbara: Augmented by the work we're doing in AI.

Neil Barbara: I'll share more on these key business initiatives during my comments today.

Neil Barbara: For fiscal 'twenty, five we've reiterated our <unk> and free cash flow guidance ranges and we think the guidance we provided for Q2 and the full year is appropriate.

Neil Barua: Kristian will take you through the details. Turning to slide four. First off, I'd like to provide an update on the changes we announced last quarter to our go-to-market organization. We've made significant progress reshaping our approach to be vertically oriented, and the changes are energizing our team and customers. These efforts are designed to align us with our long-term growth opportunities and ensure we remain well positioned to deliver value for our customers and shareholders.

Neil Barbara: Christian will take you through the details.

Christian: Turning to slide four.

Speaker Change: First off I'd like to provide an update on the changes we announced last quarter to our go to market organization we.

Speaker Change: Significant progress reshaping our approach to be vertically oriented and the changes are energizing our team and customers.

Speaker Change: These efforts are designed to align us with our long term growth opportunities and ensure we remain well positioned to deliver value for our customers and shareholders.

Speaker Change: As part of this transformation, we welcomed Rob data as our Chief revenue Officer in December.

Neil Barua: As part of this transformation, we welcomed Rob Dada as our Chief Revenue Officer in December. Rob's reputation for excellence in enterprise software is already evident. His impact on the sales team and his focus on performance standards are in early stages and showing promise. Rob is also instilling greater alignment across our sales, customer success, and marketing teams, setting the stage for sustained growth over time. In addition to Rob, we've added key leadership roles in growth marketing, technical enablement, sales enablement, and customer success. These hires bring fresh perspectives and high standards, and their mandate is to raise the bar across our organization.

Speaker Change: <unk> reputation for excellence in enterprise software is already evident because.

Speaker Change: Because the impact on the sales team and his focus on performance standards are in early stages and showing promise.

Speaker Change: Rob is also instilling greater alignment across our sales customer success and marketing teams setting the stage for sustained growth over time.

Speaker Change: In addition to Rob we've added key leadership roles and growth marketing technical enablement sales enablement and customer success.

Speaker Change: These hires bring fresh perspectives and high standards and their mandate is to raise the bar across our organization.

Speaker Change: Our vertical approach and organizational changes will take time to bear fruit and we expect to be hitting our stride as we exit the year.

Neil Barua: Our vertical approach and organizational changes will take time to bear fruit, and we expect to be hitting our stride as we exit the year. To be clear, these efforts are critical to delivering sustainable, low-double-digit ARR growth. I'm encouraged by what I'm seeing so far. There is a step change in focus and speed, and we will not take our foot off the pedal.

Speaker Change: To be clear. These efforts are critical to delivering sustainable low double digit AOR growth.

Speaker Change: I'm encouraged by what I'm seeing so far there is a step change in focus and speed and we will not take our foot off the pedal.

Speaker Change: Let's move now to slide five which highlights our product portfolio and strategy.

Neil Barua: Let's move now to slide five. which highlights our product portfolio and strategy. Our customers need to introduce new products at a faster pace and with higher quality, even as product complexity increases. That's not possible without digital transformation across their workflows, which is what our products enable. We're focusing our resources and attention on the five core areas of our portfolio that we believe can create the greatest customer value. As a reminder, these five focus areas are PLM, which is driven primarily by our windshield product, ALM, which is driven by our CodeBeamer product, SLM, which is primarily driven by our ServiceMax product, CAD, which is driven primarily by our Creo product, and lastly, our continued focus on SaaS.

Our customers need to introduce new products at a faster pace and with higher quality, even as product complexity increases.

Speaker Change: That's not possible with our digital transformation across their workflows, which is what our products enable.

Speaker Change: We're focusing our resources and attention on our five core areas of our portfolio that we believe can create the greatest customer value.

Speaker Change: As a reminder, these five focus areas are.

Speaker Change: T O M, which is driven primarily by our <unk> product.

Speaker Change: <unk>, which is driven by our <unk> product.

Speaker Change: Sell out which is primarily driven by our service Max product.

Speaker Change: <unk>, which is driven primarily by our cryo products and lastly, our continued focus on SaaS.

Speaker Change: Today I'd like to highlight some exciting new advancements across these focus areas.

Neil Barua: Today, I'd like to highlight some exciting new advancements across these focus areas. Starting with PLM. With Windchill Navigate View Work Instructions, we're extending 3D digital work instructions from PLM to shop floor employees, enabling our customers to get more value from their product. In ALM, we're excited about the upcoming release of CodeBeamer 3.0, which will further extend the scalability and capabilities of our market-leading ALM In SLM, just this past quarter, we achieved FedRAMP certification for ServiceMacs, a critical milestone that opens new opportunities in our FAND vertical. In CAD, Creo 12 leapfrogs the competition in composite structure design and adds thermal physics to our AI-driven generative design and Both of these are embedded modules within Creo and open up new use cases for highly innovative design.

Speaker Change: Starting with PNM with Windchill navigate view work instructions were extending three D. Digital work instructions from Peel them to shop floor employees any.

Speaker Change: Tabling, our customers to get more value from their product data.

Speaker Change: In a L. M. We're excited about the upcoming release of code Beamer, three data, which will further extend the scalability and capabilities of our market leading <unk> solution.

Speaker Change: In S. L out just this past quarter, we achieved fed ramp certification for service smacks, a critical milestone that opens new opportunities in our F&D vertical.

Speaker Change: In Cat Krio, 12, leapfrog, the competition and composite structure design and adds thermal physics to our AI driven generative design engine.

Speaker Change: Both of these are embedded modules within krio and open up new use cases for highly innovative designs.

Neil Barua: And also, in SaaS, Onshape, the industry's only cloud-native SaaS platform for CAD and PDM, also continues to advance, delivering significant new releases at a remarkable pace, 17 over the past year, including cloud-native CAM and advanced surfacing. We are also further differentiating our core offerings with AI and we're encouraged by the opportunity this presents.

Speaker Change: And also in fast on ship the industry's only cloud native SaaS platform for CAD and P. D. M. Also continues to advance delivering significant new leases at a remarkable place 17 over the past year, including cloud native Cam and advanced.

Speaker Change: Servicing surfacing tools.

Speaker Change: We are also further differentiating our core offerings with AI and we're encouraged by the opportunity this presents.

Neil Barua: So let's get into this area. We believe the industries we serve, over time, will be fundamentally transformed by AI, and PTC is in a great position to be a leader on this front. The promise of AI is based on access to data and putting it to use. PTC solutions are used to create, manage, and share the product data that is at the heart of our customer's business. This could be design data in Creo, requirements data in CodeBeamer, bills and material data in Windchill, or service history data and service specs. We are advantaged in that we have decades of experience with how our customers use this data in their everyday operations and the impact that it has on workflows, speed of development, product quality, and employee productivity.

Speaker Change: Let's get into this area.

Speaker Change: We believe the industries, we serve over time will be fundamentally transformed by AI and PTC is in a great position to be a leader on this front.

Speaker Change: The promise of AI is based on access to data and putting it to use.

Speaker Change: PTC solutions are used to create manage and share the product data that is at the heart of our customers' businesses.

Speaker Change: This can be designed data and cryo requirements data and code beamer bills of material data and windshield or service history data and service Max.

Speaker Change: We are advantaged in that we have decades of experience with how our customers use this data in their everyday operations and the impact that it has on workflows speed of development product quality and employee productivity.

Neil Barua: Our understanding of how this data is stored, accessed, and used in our products has been our blueprint for applying AI. It's our secret sauce. Throughout 2024, I said PTC is taking a practical and value-based approach to AI for our customers. We've been hard at work on this front and have identified the most prominent applications and use cases for AI across our portfolio in concert with customer feedback. Our offerings operate in assistant-like capacities, allowing customers to interrogate the data in their systems to confirm information, accelerate workflows, and automate tasks, such as proactively notifying engineers of a design or requirement These AI offerings will also have specialized AI agents embedded in them.

Speaker Change: Our understanding of how this data is stored accessed and use in our products has been our blueprint for applying AI, it's our secret sauce.

Speaker Change: Throughout 2024, I said PTC is taking a practical and value based approach to AI for our customers.

Speaker Change: We've been hard at work on this front.

Speaker Change: And have identified the most prominent applications and use cases for AI across our portfolio in concert with customer feedback.

Speaker Change: Our offerings operate in assistant like capacities.

Speaker Change: Allowing customers to interrogate the data and their systems to confirm information accelerate workflows.

Speaker Change: And automate tasks, such as proactively notifying engineers of a design or requirements change.

Speaker Change: These AI offerings will also have specialized AI agents embedded in these.

Neil Barua: These agents will map to specific domain workflows and data sources within engineering, manufacturing, and service, and they'll intelligently interact behind the scenes, connecting information across their specialty domains to serve out the best information or complete a task.

Speaker Change: These agents will map to specific domain workflows and data sources within engineering manufacturing and service and they'll intelligently interact behind the scenes connecting information across their specialty domains to serve up the best information or complete a task.

Speaker Change: I am pleased to share that the first of these offerings will launch next week with service Max the Servicemaster AI offering includes several agents that assists with scheduling service delivery and workforce enablement.

Neil Barua: I'm pleased to share that the first of these offerings will launch next week with ServiceMax. The ServiceMax AI offering includes several agents that assist with scheduling, service delivery, and workforce enablement. This offering was in beta mode for much of 2024 with top ServiceMax customers, and now it's ready for everyone. These AI agents have access to all the data stored in a ServiceMax instance, and technicians can interact with them through natural language. Using the latest Gen AI technology, the agents can answer questions about a specific job or asset, automate manual documentation and scheduling tasks, and review proactive recommendations for predictive maintenance.

Speaker Change: This offering was in beta mode for much of 2024 with top service back to customers and now it's ready for everyone.

Speaker Change: These AI agents have access to all the data stored in a service facts incidence and technicians can't ever interact with them through natural language.

Speaker Change: Using the latest Gen AI technology. The agents can answer questions about a specific job or asset automate manual documentation and scheduling task and review proactive recommendations for predictive maintenance the.

Neil Barua: The main goal here is greater efficiency for technicians, doing more in less time. As part of this launch, we're introducing a new ServiceMech AI SKU, which will be the entry point for AI-powered... This will be a per user, per month subscription charge, which is what Service Max customers are used to. Our ServiceMax roadmap for Fiscal 25 includes other AI-powered features and capabilities based on large language models that can be accessed via the same ServiceMax AI SKU. We believe that more ways of accessing AI-powered features will lead to more adoption and happier customers. This will allow us to learn faster and continue to improve the offerings and pricing model.

Speaker Change: The main goal here is greater efficiency for technicians doing more than last time.

Speaker Change: As part of this launch we are introducing a new service Max AI, SKU, which will be the entry point for AI powered features this will be a per user per month subscription charge, which is what service Max customers are used to.

Speaker Change: Our surface Max roadmap for fiscal 'twenty five includes other AI powered features and capabilities based on large language models that can be accessed via the same service mix AI SKU.

Speaker Change: We believe that more ways of accessing AI powered features will lead to more adoption and happier customers.

Speaker Change: This will allow us to learn faster and continue to improve the offerings and pricing models.

Speaker Change: In addition, we have been testing a beta version of generative AI features and code Beamer with Volkswagen Group, and Microsoft, which we demonstrated at Microsoft's ignite event in November to much fanfare.

Neil Barua: In addition, we have been testing a beta version of generative AI features in CodeBeamer with Volkswagen Group and Microsoft, which we demonstrated at Microsoft's Ignite event in November to much fanfare. Based on customer feedback, I'm excited around the real potential for AI here because of CodeBeamer's importance to software-defined product strategies for so many of our customers. These customers store their hardware and software requirements data in CodeBee. critical for the overall product development process and for meeting regulatory and safety requirements. These new AI features will help engineering teams improve the quality of the requirements, remove duplicate requirements, and compare newer requirements against existing quality standards.

Speaker Change: Based on customer feedback I'm excited around the real potential for AI here because of code beamers importance to software defined product strategies for so many of our customers.

Speaker Change: These customers store their hardware and software requirements data encodes beamer.

Speaker Change: Critical for the overall product development process and for meeting regulatory and safety requirements.

Speaker Change: These new AI features will help engineering teams improve the quality of their requirements.

Speaker Change: Move duplicate requirements and compare newer requirements against against existing quality standards.

Speaker Change: We're also hard at work on incremental AI functionality within windshield krio on shape Arena service <unk> and other products and you can expect previews at upcoming events, such as H M I <unk> and the Paris Air show.

Neil Barua: We're also hard at work on incremental AI functionality within Windchill, Creo, Onshape, Arena, Servagistics, and other products. And you can expect previews at upcoming events, such as HMI and the Paris Airshow. Ultimately, with the value they'll provide, the goal of our AI offerings is to draw in new customers. encourage upgrades with existing customers and become even more critical to day-to-day workflow.

Speaker Change: Ultimately the value they will provide the goal of our AI offerings is to drive new customers encourage upgrades with existing customers and become even more critical to day to day workflows.

Speaker Change: Turning now to some customer examples from Q1 that highlight our core offerings.

Neil Barua: Turning now to some customer examples from Q1 that highlight our core offers. Moving to slide six. We previously talked about our opportunity to cross out CodeBeamer ALM to our base of windshield customers. as products of all types become increasingly software driven. The two products, Windchill and CodeBeamer, in a customer environment, working together, is highly differentiated in our space, an area we are invested in. Today's first customer story highlights. This MedTech customer has been leveraging Windchill to help drive their business since 2017. Deploying it broadly, beyond core engineering, as a platform to enable enterprise-wide collaboration and accelerate time to market.

Speaker Change: Moving to slide six.

Speaker Change: We've previously talked about our opportunity to cross sell <unk> Alan.

Speaker Change: To our base of windchill customers.

Speaker Change: As products of all types become increasingly software driven.

Speaker Change: The two products Windchill and code Beamer in a customer environment working together is highly differentiated in our space in area. We are investing in.

Speaker Change: Today's first customer story highlights this theme.

Speaker Change: This med tech customer has been leveraging windshield to help drive their business since 2017 deploying it broadly beyond core engineering as a platform to enable enterprise wide collaboration accelerate time to market.

Neil Barua: Software-defined products are a focus area for this customer, as software has become a key driver of their product differentiation. In fact, their main products are software upgradable, and they are able to charge their customers for software upgrades that add value to existing products. At the same time, the opportunity for software-driven product growth comes with new challenges associated with managing the rapid expansion in the number of unique software configurations that need to be developed and updated over time. This customer needs help managing all of these software variants and releases, and that is why they are now focused on modernizing their current fragmented ALM system and expanding their use of ALM.

Speaker Change: Software defined products are a focus area for this customer as software has become a key driver of their product differentiation.

Speaker Change: In fact their main products are software upgradable and they are able to charge their customers for software upgrades the value to existing products.

Speaker Change: At the same time the opportunity for software driven product growth comes with new challenges associated with managing the rapid expansion in the number of unique software configurations that need to be developed and updated over time.

Speaker Change: This customer needs help managing all of these software variance and releases and that is why they are now focused on monitoring modernizing their current fragmented a L M system and expanding their use of <unk>.

Neil Barua: They decided to standardize on CodeBeamer, displacing two legacy ALM vendors. Cross-selling was a key part of this. This customer is a happy user of Windsor. CodeBeaver's future roadmap aligns with their future plan. Furthermore, the MEDTEC vertical is similar to verticals including automotive and federal, aerospace and defense, in that there is an additional catalyst driving the adoption of Code B. Regulatory and Safety Compliance. With the rapid increase of software that is embedded in hardware components, companies are looking for tools to help ensure and automate their regulatory compliance processes. Traceability is required for safety-critical, highly-regulated industries, and CodeBeamer is the most modern ALM product that enables this in an agile development environment.

Speaker Change: They decided to standardize on code Beamer, displacing two legacy vendors.

Speaker Change: Cross selling was a key part of this deal. This customer is a happy user of windchill and Kobe risk future roadmap aligns with their future plans.

Furthermore, the med tech vertical is similar to verticals, including automotive and federal aerospace and defense and that Theres, an additional catalysts driving the adoption of <unk>.

Speaker Change: Regulatory and safety compliance.

Speaker Change: With the rapid increase of software that is embedded in hardware components companies are looking for tools to help ensure and automate their regulatory compliance processes trace.

Speaker Change: Traceability is required for safety critical highly regulated industries and could be where it is the most modern a L. M product that enables us in an agile development environment.

Neil Barua: Beyond this specific customer example, 27 of the top 30 public medical device manufacturers use PTC in some fashion, and we believe we are well positioned to expand our footprint and grow our CodeBeamer business in this vertical. ALM represents a really interesting growth opportunity across multiple verticals in alignment with our PLM focus. As such, we have been increasing our investments in CodeBeamer, working alongside Creo and Windchill to accelerate our leadership.

Speaker Change: Beyond this specific customer example, 27 of the top 30 public medical device manufacturers use PTC in some fashion.

Speaker Change: And we believe we are well positioned to expand our footprint and grow our could be of our business in this vertical.

Speaker Change: M represents a really interesting growth opportunity across multiple verticals in alignment with our pls focus.

Speaker Change: As such we have been increasing our investments in code Beamer, working alongside Creon windchill to accelerate our leadership.

Speaker Change: Turning to our next customer story on slide seven.

Neil Barua: Turning to our next customer story on slide seven. This customer is in the federal aerospace and defense vertical, and is a good example of a well-established company that continues to invest in digital transformation to drive market leadership in a competitive, high-growth environment. This customer is seeing strong growth in demand and needs to increase production. In addition, their customers are asking for state-of-the-art products that are at the boundary of what is physically possible. We're talking about designs where a small amount of wind resistance makes a big, very big difference. To tackle these challenges, this customer needs best-in-class tools, and that's why they chose Creo for Design Engineering and Windchill as their enterprise backbone for their product data.

Speaker Change: This customer is in the federal aerospace and defense vertical and is a good example of a well established company that continues to invest in digital transformation to drive market leadership, and a competitive high growth environment.

Speaker Change: This customer is seeing strong growth in demand and needs to increase production. In addition, there are customers asking for state of the art products that are at the boundary of what as physically possible. We're talking about designs, where small amount of wind resistance makes a big very big difference.

Speaker Change: To tackle these challenges discussed earlier these best in class tool and that's why they chose krio for design engineering and windshield as their enterprise backbone for their product data.

Speaker Change: Design excellence is in focus for this customer because this is an R&D centric enterprise and it depend on improvements in design engineering to stay competitive.

Neil Barua: Design excellence is in focus for this customer because this is an R&D centric enterprise and they depend on improvements in design engineering to stay competitive. To further add to their capabilities, they will continue to invest in advanced CREO modules, including CREO Simulation Live, Composites, and Generative Design. These modules will help this customer produce lighter weight products with higher quality at a faster pace using less material. This customer is also continuing to expand its Windchill system as an enterprise platform to drive collaboration around real-time, trusted product data. They have provided windshield product data access to operational functions including supply chain, quality, sales, and service.

Speaker Change: To further add to their capabilities. They will continue to invest in advanced krio modules, including <unk> simulation live composites and generative design.

Speaker Change: These modules will help this customer produce lighter weight products with higher quality at a faster pace using less materials.

Speaker Change: This customer is also continuing to expand its winchell system as an enterprise platform to drive collaboration around real time trusted product data.

Speaker Change: They have provided windshield product data access to operational functions, including supply chain.

<unk> sales and service usage has gone viral driving productivity gains.

Neil Barua: Usage has gone viral, driving productivity. These outcomes are leading to a large follow-on order for more seats, as well as further expansion to employees on the factory floor. Currently, approximately 70% of this customer's employee base benefits from having access to product data in Windchill. And this customer's Creo and Windchill ARR has grown significantly, with more room to run.

Speaker Change: These outcomes are leading to a large follow on order for more seats as well as further expansion to employees on the factory floor.

Speaker Change: Currently approximately 70% of this customer's employee base benefits from having access to product data and windchill and this customers <unk> and windchill air or has grown significantly with more room to run.

Speaker Change: In closing I remain immensely optimistic about where PTC is heading our focus strategic initiatives are gaining traction and we are driving purposeful innovations that are resonating with customers.

Neil Barua: In closing, I remain immensely optimistic about where PTC is heading. Our focused strategic initiatives are gaining traction and we are driving purposeful innovations that are resonating with customers. Combine that with transformative, go-to-market changes. and to focus on accountability in everything we do and you can understand why we are energized.

Speaker Change: Combine that with transformative go to market changes.

Speaker Change: And a focus on accountability in everything we do and you can understand why we are energized. Thank you for your support and interest in PTC kristian over to you.

Neil Barua: Thank you for your support and interest in PTC.

Kristian Talvitie: Kristian, over to you. Thanks, Neil. And hello, everyone.

Kristian: Thanks, Neil and Hello, everyone.

Kristian Talvitie: Starting off with slide nine. Our ARR and free cash flow results in Q1 were in line with our guide. 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 FX volatility. We provide ARR guidance and disclose our ARR results on a constant currency basis. At the end of Q1'25, our constant currency ARR using our fiscal 25 plan FX rates was $2.277 billion, up 11% year over year. In Q1, we saw a continuation of the challenging selling environment we've been experiencing for a couple years now, and this continues to impact close rates.

Kristian: Starting off with slide nine.

Kristian: Our <unk> and free cash flow results in Q1 were in line with our guidance as you know, we believe <unk> 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 FX volatility.

Kristian: We provide <unk> guidance and disclose are our results on a constant currency basis.

Kristian: At the end of Q1, 'twenty five or constant currency <unk> using our fiscal 'twenty five plan FX rates was 2.277 billion up 11% year over year.

Kristian: In Q1, we saw a continuation of the challenging selling environment, we've been experiencing for a couple years now and this continues to impact close rates.

Kristian: Also consistent with our expectations from a quarter ago, our constant currency growth in Q1 was impacted by two factors, which we called out on our previous earnings call. The first factor was the linearity of deferred a R. R. In fiscal 'twenty five and the second factor was a couple of contracts that resulted.

Kristian Talvitie: Also consistent with our expectations from a quarter ago, our constant currency ARR growth in Q1 was impacted by two factors which we called out on our previous earnings call. The first factor was the linearity of deferred ARR in fiscal 25, and the second factor was a couple of contracts that resulted in churn in Q1 which are contracted to come back into ARR later this fiscal year.

Kristian: And churn in Q1, which are contracted to come back in the <unk> later this fiscal year.

Kristian: Moving on to cash flow in Q1, our free cash flow was up 29% year over year as we continued to invest in our key focus areas at the same time.

Kristian Talvitie: Moving on to cash flow. In Q1, our free cash flow was up 29% year-over-year as we continued to invest in our key focus areas at the same time. Note that the $236 million of free cash flow we generated in Q1 absorbed $11 million of outflows related to our go-to-market realignment. which is in line with our expectations.

Kristian: Note that the $236 million of free cash flow, we generated in Q1 absorbed $11 million of outflows related to our go to market realignment.

Kristian: Which is in line with our expectations.

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

Kristian Talvitie: Turning to slide 10, let's look at our constant currency, ARR growth, and more. looking at our product groups, our constant currency, ARR. Year-over-year growth was 9% in CAD, driven primarily by Creo, and 11% in PLM, primarily driven by Windchill, CodeBeamer, IoT, and ServiceBot. On a year-over-year basis, constant currency ARR grew by 9% in the Americas and 12% in both Europe and Asia Pacific. Our ARR growth is based on our unique product portfolio, which aligns with the digital transformation needs of our customers. Despite the overall selling environment, our top line has shown good resilience, supported by our subscription model, low churn rate, and the propensity for our customer base to prioritize their R&D investments through challenging times.

Kristian: Looking at our product groups are constant currency.

Kristian: Year over year growth was 9% and CAD, driven primarily by Korea, and 11% in P. L. M, primarily driven by wind Chill code Beamer, Iot and service Max.

Kristian: On a year over year basis constant currency <unk> grew by 9% in the Americas and 12% in both Europe and Asia Pacific.

Kristian: Our growth is based on our unique product portfolio, which aligns with the digital transformation needs of our customers. Despite the overall selling environment. Our top line has shown good resilience supported by our subscription model low churn rate and the propensity for our customer.

Kristian: <unk> to prioritize their R&D investments through challenging times.

Kristian: Turning to slide 11, we ended Q1 with cash and cash equivalents of $196 million.

Kristian Talvitie: Turning to slide 11, we ended Q1 with cash and cash equivalents of $196 million. At the end of Q1, gross debt was $1.548 billion and we were 1.7 times leveraged. We continue to diligently pay down our debt, and we've started to buy back shares under our $2 billion share repurchase program. During Q1, we paid down our debt by $205 million and used $75 million of cash to repurchase 383,000 shares of our common stock. As you all know, we have a $500 million bond that's coming due in February, which we intend to retire upon expiration with cash on hand and by drawing on our revolving credits.

Kristian: At the end of Q1 gross debt was 1.548 billion and we were one seven times levered.

Kristian: We continue to diligently pay down our debt and we started to buy back shares under our $2 billion share repurchase program.

Kristian: During Q1, we paid down our debt by $205 million and used $75 million of cash to repurchase 383000 shares of our common stock.

Kristian: As you all know we have a $500 million bond that's coming due in February which we intend to retire upon exploration with cash on hand, and by drawing on our revolving credit facility.

Kristian: Yeah.

Kristian Talvitie: Given the consistency and predictability of the business, we aim to maintain a low cash balance. As such, assuming we have excess cash, we expect to return it to shareholders. The authorization we now have in place gives us a lot of flexibility in how we do this. In line with what we've said previously, we currently intend to buy back approximately $300 million of our common stock in fiscal 2025. with another approximately 75 million of repurchases expected in Q2. Our long-term goal, assuming our debt-to-ebit-dollar 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 consistency and predictability of the business, we aim to maintain a low cash balance.

Kristian: As such assuming we have excess cash we expect to return it to shareholders.

Kristian: The authorization, we now have in place gives us a lot of flexibility in how we do that.

Kristian: In line with what we've said previously we currently intend to buy back approximately $300 million of our common stock in fiscal 'twenty five.

Kristian: With another approximately $75 million of repurchases expected in Q2.

Kristian: 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.

Kristian: While also taking into consideration the interest rate environment and strategic opportunities.

Kristian: Finally, our fully diluted share count in fiscal 'twenty, four was $121 million and we currently expect fully diluted shares to be approximately flat in fiscal 'twenty five.

Kristian Talvitie: Finally, our fully diluted share count in fiscal 24 was $121 million, and we currently expect fully diluted shares to be approximately flat in fiscal 25.

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

Kristian Talvitie: With that, I'll take you through our guidance on slide 12. All of the ARR amounts on this slide are based on our fiscal 25 plan rates as of September 30, 2024. For Constant Currency ARR, given our differentiated product portfolio, the resilience of our subscription business model, the actions we've taken over time to align our investments with market opportunities, and allowing that our go-to-market changes. are expected to take time to have their intended effect. We expect growth of approximately 9% to 10% for Fiscal 2025 and approximately 9.5% for Q2 of Fiscal 2025. I'll get into more detail on constant currency error on the next two slides.

Kristian: All of the E. R. R amounts on this slide are based on our fiscal 'twenty five planned rates as of September 32024.

Kristian: For constant currency a R. R. Given our differentiated product portfolio the resilience of our subscription business model. The actions, we've taken over time to align our investments with market opportunities.

Kristian: And allowing that our go to market changes.

Kristian: Our expected to take time to have their intended effect.

Kristian: We expect growth of approximately 9% to 10% for fiscal 'twenty, five and approximately 95% for Q2 of fiscal 'twenty five.

Kristian: I'll get into more detail on constant currency arrow in the next two slides.

Kristian Talvitie: On cash flow, we're guiding the free cash flow of $835 to $850 million in fiscal 25, which absorbs the approximately $20 million of cash outflows for severance and consulting fees related to our go-to-market realignment we've discussed previously. We're not calling out a restructuring charge, so all of this will flow through the sales and marketing and cost of revenue lines on our P&L. As we've said previously, this is not a cost-cutting exercise. We're reinvesting in our go-to-market organization with a focus on the areas we believe deliver the greatest value to our customers. In fiscal 25, we expect largely similar invoicing seasonality compared to the previous four years.

Kristian: On on cash flow, we're guiding to free cash flow of $835 million to $850 million in fiscal 'twenty five.

Kristian: Which absorbs the approximately $20 million of cash outflows for severance and consulting fees related to our go to market realignment we've discussed previously.

Kristian: We're not calling out a restructuring charge. So all of this will flow through the sales and marketing and cost of revenue lines in our P&L.

Kristian: As we've said previously this is not a cost cutting exercise we're reinvesting in our go to market organization with a focus on the areas, we believe deliver the greatest value to our customers.

Kristian: In fiscal 'twenty, five we expect largely similar invoicing seasonality compared to the previous four years.

Kristian Talvitie: Based on this and our expected cash outflows, we expect approximately 60% of our free cash flow to be generated in the first half of the year, and for fiscal Q4 to be our lowest cash flow generation quarter. For Q2 of Fiscal 25, we're guiding for free cash flow of approximately $270 million, which absorbs approximately $4 million of the $20 million of total outflows related to our go-to-market realignment. Note that our cash flow guidance is not on a constant currency basis. So FX fluctuates. can have an impact in either direction. Approximately 45% of our ARR is transacted in foreign currencies, and approximately 35% of our non-GAAP cost of revenue and operating expenses are transacted in foreign currencies.

Kristian: Based on this and our expected cash outflows, we expect approximately 60% of our free cash flow to be generated in the first half of the year and for fiscal Q4 to be our lowest cash flow generation quarter.

Kristian: For Q2 of fiscal 'twenty five we're guiding for free cash flow of approximately $270 million, which absorbs approximately $4 million of the $20 million of total outflows related to our go to market realignment.

Kristian: Yeah.

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

Kristian: Approximately 45% of our R. R is transacted in foreign currencies and approximately 35% of our non-GAAP cost of revenue and operating expenses are transacted in foreign currencies. So we have somewhat of a natural hedge.

Kristian Talvitie: So we have somewhat of a natural head. That said, significant FX moves can have an impact and we're seeing some of that pressure this year. We'll see how FX rates move as we progress through the year, but at this point, we still feel comfortable with our cashflow guidance for Q2 and for fiscal 25. Well, changes in FX. Interest rates and tax regulations can be difficult to predict. We have a high degree of confidence in our free cash flow forecasting process. due to the predictability of our cash collections and the disciplined budgeting structure we have in place.

Kristian: That said significant FX moves can have an impact and we're seeing some of that pressure of this year.

Kristian: We'll see how FX rates move as we progress through the year, but at this point, we still feel comfortable with our cash flow guidance for Q2 and for fiscal 'twenty five.

While changes in FX interest rates and tax regulations can be difficult to predict we have a high degree of confidence in our free cash flow forecasting process due.

Kristian: Due to the predictability of our cash collections and the disciplined budgeting structure, we have in place.

Kristian Talvitie: 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 limits. So our free cash flow results over time are comparable. Furthermore, over the past five years, we've optimized our internal budgeting process. It starts with having a subscription business model that generates predictable cash inflows. Then, we begin each fiscal year by funding our business for growth at the low end of our internal ARR forecast. As the year progresses, we maintain or increase that level of funding based on the growth dynamics we're seeing.

Kristian: Importantly, we have maintained consistent billing practices over time, we primarily bill our customers annually upfront one year at a time regardless of contract term lengths.

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

Kristian: Furthermore, over the past five years, we've optimized our internal budgeting process.

Kristian: It starts with having a subscription business model that generates predictable cash inflows than we began each fiscal year by funding our business for growth at the low end of our internal forecast.

Kristian: As the year progresses, we maintain or increase that level of funding based on the growth dynamics, we're seeing.

Kristian Talvitie: By proceeding in this manner, we're able to match our investments to the market environment in an agile way, while also delivering predictable free cash flow. That said, we would not do anything that impacts the long-term prospects of the business because of short-term FX moves. Over the medium term, we continue to expect our free cash flow to grow faster than our ARR, with non-GAAP operating expenses expected to grow at roughly half the rate of ARR. A basic tenet of our subscription business model and budgeting process is that there's natural operating leverage that we benefit from as our ARR grows.

Kristian: By proceeding in this manner, we're able to match our investments to the market environment in an agile way, while also delivering predictable free cash flow.

Kristian: That said, we would not do anything that impacts the long term prospects of the business because of short term FX movements.

Kristian: Over the medium term, we continue to expect our free cash flow to grow faster than our IRR with non-GAAP operating expenses expected to grow at roughly half the rate of a R. R.

Kristian: Basic tenet of our subscription business model and budgeting process is that there is natural operating leverage that we benefit from as our <unk> grows.

Kristian: To help you with your models.

Kristian Talvitie: to help you with your model. We're providing revenue and EPS. However, I'd like to reiterate my favorite reminder, ASC 606 makes revenue and EPS difficult to predict for PTC since we primarily sell on-premise 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 Q4 Fiscal 22 call that you may want to refer to if you're new to PTC. You can find the presentation on the Investor section of our website. 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.

Kristian: We are providing revenue and EPS guidance, however, I'd like to reiterate my favorite reminder.

Kristian: <unk> 606 makes revenue and EPS difficult to predict for PTC since we primarily sell on premise subscription.

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

Kristian: You can find the presentation on the investors section of our website.

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

Kristian: Next on slide 13.

Kristian Talvitie: Next, on slide 13. Here's an illustrative constant currency ARR model for Q2. This slide shows our sequential net new ARR over the past couple of years, and the column on the far right illustrates that we need 44 million of sequential net new ARR growth to hit 9.5% growth for Q2. Obviously, it's impossible to predict any given quarter with that level of precision, and we're being mindful of the macro environment and the go-to-market changes we're making. As you know, based on our results over the past few years, our net new ARR can be somewhat volatile in any given quarter.

Kristian: Here's an illustrative constant currency our model for Q2.

Kristian: This slide shows our sequential net new <unk> over the past couple of years and the column on the far right illustrates that we need $44 million of sequential net new <unk>.

Kristian: Growth to hit nine 5% growth for Q2.

Kristian: Obviously, it's impossible to predict any given quarter with that level of precision and we're being mindful of the macro environment and the go to market changes we're making.

Kristian: As you know based on our results over the past few years, our net new <unk> can be somewhat volatile in any given quarter given dynamics such as the timing of new bookings the timing of renewals and the timing of deferred <unk>, starting how much of our new bookings in any given quarter starts in the quarter how.

Kristian Talvitie: Given dynamics such as the timing of new bookings, the timing of renewals, the timing of deferred ARR starting, how much of our new bookings in any given quarter starts in the quarter, how much churn we expect in any given quarter, etc. It's not unusual to see quarterly volatility in our sequential net new ARR results. Importantly, we expect churn to remain low throughout fiscal 25. Also, as we make incremental investment decisions over the course of a fiscal year, we continue to focus on our internal forecast for the full year, Net New ARR.

Kristian: <unk> churn, we expect in any given quarter et cetera.

Kristian: It's not unusual to see quarterly volatility in our sequential net new <unk> results.

Kristian: Importantly, we expect churn to remain low throughout fiscal 'twenty five.

Kristian: Also as we make incremental investment decisions over the course of our fiscal year, we continue to focus on our internal forecast for the full year net new <unk> growth.

Kristian: Moving to slide 14, here's a similar illustrative model for fiscal 'twenty five you can see our results over the past three years and the column on the right illustrates that we need $214 million of net new <unk> this year.

Kristian Talvitie: Moving to slide 14, here's a similar illustrative model for Fiscal 25. You can see our results over the past three years, and the column on the right illustrates that we need $214 million of net new ARR this year to hit the midpoint of our Fiscal 25 constant currency ARR guidance rate. This range, along with our Q1 results and Q2 guidance, obviously indicates back half-loaded gear, which is supported by our pipeline and our internal port. Our pipeline continues to grow and we have a significant stable of large opportunities in our Q3 and Q4. at the midpoint of our range.

Kristian: Hit the midpoint of our fiscal 'twenty five constant currency guidance range.

Kristian: This range along with our Q1 results and Q2 guidance, obviously indicates back.

Kristian: Back half loaded year, which is supported by our pipeline and our internal forecast.

Kristian: Our pipeline continues to grow and we have a significant stable of large opportunities in our Q3 and Q4.

Kristian: At the midpoint of our range.

Kristian Talvitie: We would be adding approximately $20 million less net new ARR in fiscal 25 compared to 2024 and approximately $5 million less than in fiscal 23 and 22. Note that fiscal 24 benefited approximately $10 million due to incremental deferred ARR in that year. Adjusting for that, our fiscal 25 guidance midpoint indicates approximately sladdish net new ARR growth compared to fiscal 24, 23, and 22. I think this point highlights exactly why we're evolving our go-to-market organization now. We're hard at work with this evolution, augmented with new product releases such as the ones that Neil outlined earlier, to ensure that we exit this year with momentum to drive net new ARR growth into fiscal 26 and beyond.

Kristian: We would be adding approximately 20 million less net new <unk> in fiscal 'twenty, five compared to 2024, and approximately $5 million less than in fiscal 'twenty, three and 'twenty two.

Kristian: Note that fiscal 'twenty four benefited from approximately $10 million due to incremental deferred RR in that year.

Kristian: Adjusting for that our fiscal 'twenty five guidance midpoint indicates approximately flattish net new <unk> growth compared to fiscal 'twenty four 'twenty three and 'twenty two.

Speaker Change: I think at this point highlights exactly why we're evolving our go to market organization. This year.

Kristian: We're hard at work with this evolution.

Doug: Doug mentioned with new product releases, such as the one once that Neil outlined earlier to ensure that we exit this year with momentum to drive net new <unk> growth into fiscal 'twenty six and beyond.

Kristian Talvitie: In the meantime, our business model is resilient, and we continue to believe the right guidance range for fiscal 25 constant currency ARR growth is nine to 10%.

Doug: In the meantime, our business model is resilient and we continue to believe the right guidance range for fiscal 'twenty five constant currency <unk> growth is 9% to 10%.

Doug: In conclusion, DTC has a strong product portfolio at.

Kristian Talvitie: In conclusion, PTC has a strong product portfolio. Strategy, a track record of operational discipline, and clear value creation opportunities. We're focused on what matters most for our customers, and we are aligning our operations so that we can scale our business in a consistent form.

Doug: That strategy, a track record of operational discipline and clear value creation opportunities.

Doug: We're focused on what matters most for our customers.

Doug: We are aligning our operations so that we can scale, our business and a consistent.

Operator: With that, I'd like to turn the call over to the operator for today's Q&A. Thank you. If you would like to ask a question, please press star one on your telephone keypad. We ask that you please limit yourself to one question only. If you have additional questions, please return to the queue. Please ensure you are not on speakerphone and that your phone is not on mute when called upon. Thank you.

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

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad, we ask that you. Please limit yourself to one question only.

Speaker Change: You have additional questions. Please return to the queue. Please.

Speaker Change: Please ensure you are not on speaker phone and that your phone is not on mute when called upon thank you.

Speaker Change: Your first question comes from the line of Jay Fleischauer with Griffin Securities. Your line is open.

Jay Vleeschhouwer: Your first question comes from the line of Jay Vleeschhouwer with Griffin Securities. Your line is open. Thank you. Good evening. Neil, your various comments on new products or product expansions are quite interesting to me. And one thing I'd like to ask about is your comments about the AI products specifically. Maybe you could talk about how you're organizing and investing in those. Is this a segment or product specific development effort? Is there a central AI group that is managing all of these developments? So there's some commonality within the company for your AI proliferation. And then just to finish up on the product side, you alluded to some expansion into manufacturing process.

Speaker Change: Thank you good evening.

Speaker Change: Neil your various comments on new products or product extensions are quite interesting to me and.

Speaker Change: One thing I'd like to ask about is your comments about it.

Speaker Change: Our products, specifically, maybe you could talk about how your.

Speaker Change: Organizing and investing in those is this a segment or.

Speaker Change: Product specific development effort is a central group that is managing all of these.

Speaker Change: Developments. So there is some commonality within the company.

Speaker Change: For your AI proliferation, and then just to finish up on the product side, you alluded to some expansion into manufacturing process.

Jay Vleeschhouwer: This is something that two of your larger competitors, Dassault and Siemens, have clearly been investing in and seeing new business in. Is this an incrementally important use case or application area for you?

Speaker Change: This is something that two of your larger competitors, so and Siemens have clearly been investing in and seeing new business in.

Speaker Change: This.

Speaker Change: <unk> important use case for application area for you.

Speaker Change: Yes. Thanks for the question Jay on the on the I'll take the second piece in fact, we had.

Neil Barua: Thanks for the question, Jay. On that, I'll take the second piece. In fact, we had a contingent of a number of people, partners, as well as employees today here at the Seaport this week, working through the manufacturing process, please, and process category and value that we've got. The way we're approaching it is, we believe extending PLM windshield data to the manufacturing floor is where our value resides, and we see that working in conjunction with the MES systems of the world that are deeper into that workflow. We will provide the PLM data to those systems and to ERPs is our approach on the manufacturing side.

Speaker Change: <unk> a number of people partners as well as employees today here at the Seaport. This week working through the manufacturing process. Please.

Speaker Change: Process category and value that we've got the way we're approaching it is we believe extending P. A L. M windchill data to the manufacturing floor is where our.

Speaker Change: Value resides and we see that working in conjunction with the Mes systems of the world that are deeper into that.

Speaker Change: Into that workflow, we will provide the pls data to those systems and the ERP is our approach on the manufacturing side on the on the other piece on the AI.

Speaker Change: As you know as we've talked about with service backs, we were letting 'twenty 'twenty four b.

Speaker Change: April for our teams to self introduce and innovate and experiment with AI technologies over the course of 'twenty 'twenty. Four you saw the service snacks team really doing a nice job odd shaped by the way has also done a really nice job with that.

Speaker Change: Thinking through all different technologies and approaches for working with customers on betas by which now is as I talked about service Max's G. On Jan February 10th here Theyre Servicemaster, Aip's and that was done within the service tax team, but what we've seen with code Beaver now in the <unk>.

Speaker Change: So we got out of the ignite conference.

Speaker Change: Conference and the work, we're doing with Volkswagen and Microsoft for the code beam or launch.

Neil Barua: for the CodeBeaver launch, and subsequently, what we're doing with Windchill and Creo, we're now in the process and have already started an alignment of a group that is actually centered in on making sure there's alignment across all our AI innovations that are happening in our product segment. but we're energized, as you can tell, around the addition of AI capabilities into what is already great products for the company.

Speaker Change: And subsequently what we're doing with wind showing krio, we're now in the process and have already started and the alignment of a group that is actually centered in on making sure there's alignment across all our AI innovations that are happening in our products segment. So we're evolving it as I said it was always.

Speaker Change: Gonna be an approach, that's valuable and practical and to make sure there's value for customers and overtime can accrete to PTC and I think we're at the stage, where we were crawling last year, we started walking and it's time to move into the job. So Ron pays based on the customer feedback were getting around this.

Speaker Change: This space is evolving very quickly and we'll be very nimble towards things that are changing around that matter, but we're energized as you could tell around the addition of AI capabilities into one is already great products of the company.

Speaker Change: Okay.

Operator: Thank you, Neil.

Anthony: Thank you Anthony good question.

Operator: Thank you, Kristian.

Speaker Change: Thanks Jay.

Jason Celino: The next question comes from Jason Celino with KeyBank Capital Markets. Your line is open. Hey, thanks for taking my question. Actually, kind of building off of Jay's, you know, one of Jay's partners, you know, two of your competitors, your European one, seem to be really battling it out on the PLUM side. You know, ironically, one seems to be taking share from the other. You know, where does PTC fall in all this? I mean, have you seen any changes to the competitive environment? You know, any changes to your win rates? Are you involved in some of these?

Speaker Change: The next question comes from Jason <unk> with Keybanc capital markets. Your line is open.

Jason: Hey, Thanks for taking my question actually kind of building off of the Jays.

Speaker Change: One one of JV partners.

Speaker Change: You know two of your competitors your European ones seem to be really battling it out on the panel side.

Speaker Change: Ironically, one seems to be taking share from the other.

Speaker Change: Or does PTC falling all of this I mean have you seen any changes to the competitive environment any changes to your win rates are you involved in some of these are you are you happy.

Jason Celino: Or are you happy just to be watching from the sidelines? Thanks.

Speaker Change: Just you watch from the sidelines.

Speaker Change: Yeah.

Neil Barua: So we're fully in the arena, no being on the sidelines here, Jason, as you know, and I think what I would say is, given we're three players in this really remarkable industry where all boats are lifting because of these digital transformation needs, I'm glad to see all of us kind of rising to the occasion here, and as I said, very optimistic around how this will translate over the next number of years in front of us for all three of us competitors. That being said, strategically, our focus from a PTC perspective is that the nerve center is our windchill and CodeBeamer product capabilities, and we have amazing CAD tools like Creo, obviously, and Onshape, and we have really great aftermarket capabilities in our SLM suite.

Jason: So we're fully in the arena now being on the sidelines here, Jason as you know and I think what I would say is given where three players in this really remarkable industry, where all boats are lifting because of these digital transformation needs.

Jason: I'm glad to see all of US got are rising to the occasion here and as I said very optimistic around how this will translate over the next number of years in front of us for all three of US competitors that being said strategically our focus from a PTC perspective isn't the nerve center is our windshield.

Jason: And could be more product capabilities, and we have amazing CAD tools like Korea, obviously on shape and we have really great aftermarket capabilities in our SLM suite.

Neil Barua: Our approach, which is differentiated versus the two that you mentioned, is how do you really think about, as a customer, the utilization of windshield in coordination with your CAD systems, whether it be Creo or others, and how does software kind of get embedded into what's happening within product development cycles? And that's our approach, and the competitors, as you heard this past week, they're battling it out in the manufacturing side, which Jay talked about. We're not there. We're not going there. We're actually just showing our PLM data to the manufacturing floor, so let our two competitors play out the manufacturing side.

Jason: Our approach, which is a differentiator versus the two that you mentioned is how do you really think about it as a customer the utilization of windshield in coordination with your cat systems, whether it be Cree or others and how this software kind of get embedded into what's happening within product development cycles, and that's our approach and you can bet.

Jason: So as you heard this past week they are battling it out in the manufacturing side, which Jay talked about we're not there we're not going there we're actually just showing our pls data to the manufacturing floor. So let's let our two competitors play out the manufacturing side were really focus on where it is the product data actually need.

Neil Barua: We're really focused on where does the product data actually need real-time understanding and democratization of that moving through the enterprise, and our windshield code viewer in conjunction strategic intent is very differentiated versus our other two competitors, and we feel good about how we're positioned there.

Jason: Real time understanding and democratization of that moving through the enterprise and our windshield code fever in conjunction strategic intent is very differentiated versus our other two competitors and we feel good about how we're positioned there.

Jason: Perfect. Thank you.

Operator: Perfect, thank you.

Jason: Yeah.

Ken Wong: The next question comes from Ken Wong of Oppenheimer and Company. Your line is open. Thank you for taking my question. Kristian, I just wanted to ask about the trajectory of NRR.

Operator: The next question comes from Ken Wong of Oppenheimer and company. Your line is open.

Ken Wong: Thank you for taking my question Christian I, just wanted to ask about the trajectory of of NR or when I look at Q2 being a little sub seasonal and then maybe meld that with Neil's comments that you guys won't hit your go to market stride until Q4 is it fair to assume that we should be looking at kind of slightly.

Kristian Talvitie: When I look at Q2 being a little sub-seasonal, and then I maybe meld that with Neil's comments that you guys won't hit your go-to-market stride until Q4, is it fair to assume that we should be looking at slightly sub-seasonal net new ARR until you hit that fourth quarter? Yeah, I think we're not providing, you know, specific Q3, Q4 guidance at this point, but, you know, as I, as we said in the, you know, in the, in the prepared, prepared comments. We do have a maybe even slightly more than usual, you know, back half loaded, back half loaded year, of course back half loaded year is pretty typical for PPC and we're, you know, kind of around the edges there.

Ken Wong: <unk> sub seasonal net new way or until you hit that fourth quarter.

Ken Wong: Yeah, I think we're not providing specific Q3 Q4 guidance at this point, but you know as I as we said in the.

Ken Wong: In the prepared prepared comments.

Ken Wong: We do have a.

Ken Wong: Maybe even slightly more than usual.

Ken Wong: Back half loaded.

Ken Wong: Back half loaded year of course back half loaded year.

Ken Wong: It's pretty typical for PTC and we're kind.

Ken Wong: Kind of around the edges there.

Ken Wong: Okay got it alright, thank you.

Operator: Okay, got it. All right.

Speaker Change: The next question comes from <unk> <unk> with Mizuho. Your line is open.

Sitikantha Panigrahi: The next question comes from Siti Panigrahi with Mizuho. Your line is open. Hi, thanks for taking my question.

Speaker Change: Oh hi.

Speaker Change: Thanks for taking my question.

Sitikantha Panigrahi: Neil, on your comments about exiting fiscal 25 with momentum and maybe go in 26, help us understand the progress you have made on the go-to market alignment side, given Rob joined recently as CRO. And also on the macro side also, we recently saw manufacturing PMI bouncing back 50, above 50 after two years. Wondering what are the metrics that you look at to feel comfortable on the macro? Thanks for the question, CD.

Speaker Change: Neil.

Speaker Change: Your comments about exiting fiscal 'twenty, five with momentum and maybe go in 'twenty six.

Speaker Change: Help us understand the progress we have made on the go to market alignment sorry, given Rob joined recently as Seattle and also on the macro side also we recently saw manufacturing.

Speaker Change: My advancing back 50 about 50.

Speaker Change: Two year wondering what other metrics that you look at the feel comfortable on.

Speaker Change: On the macro side.

Speaker Change: Yeah.

Speaker Change: Thanks for the question I'll take the first one.

Neil Barua: I'll take the first one. And thanks for it. You know, I want to just level set again on reinforcing the two main reasons for why we're making in the process of all these go to market changes. First is to make us more effective at serving our customers. And the second is to make sure as we scale, we sustain our low double digit AR growth target over the medium term, right. So that's what we're like centered in on from all the changes that are being made. And in terms of the changes in Q1, you know, we're showing early promise, and I'm seeing the teams being motivated customers reacting to this as well.

Speaker Change: And thanks, Mark I wanted to just level set again on reinforcing the two main reasons for why we're making in the process of all of these go to market changes first is to make us more effective at serving our customers.

Speaker Change: And the second is to make sure as we scale, we sustain our low double digit growth target over the medium term right. So that's what we're like centered in on from all the changes that are being made in terms of the changes in Q1.

Speaker Change: Showing early promise and I'm seeing with teams being motivated customers reacting to this as well, but like three three dynamics of things, where we've already undertaken and are now.

Neil Barua: But like three, three dynamics of the things we've already undertaken and are now well underway and executing. First is in Q1, as we talked about, we've verticalized our go to market approach. Top verticals are industrial products, FAND, automotive, medtech, and electronics and high tech. So we did that and all the heavy lifting to make sure the messaging, the account transition, the plans to go execute as we're starting to do here in Q2 has been put in place. If you watch LinkedIn, you'll see the marketing messages very tailored around industry verticals. So point number one. Two is we brought Rob in, our new CRO in early December.

Speaker Change: Well underway in executing first is in Q1 as we talked about we are verticalizing our go to market approach top.

Speaker Change: Top verticals are industrial products F A&D automotive med Tech and electronics and high Tech.

Speaker Change: So we did that in all of the heavy lifting to make sure. The messaging the account transition plans to go execute as we're starting to do here in Q2 has been put in place. If you watch linked and Youll see the marketing messages very tailored around industry verticals. So point number one two is we brought Robyn are new.

Speaker Change: Oh in early December.

Neil Barua: Rob's acclimated real well so far. He's infusing a ton of discipline and depth into as an example, our weekly pipeline management processes. He's working through the overall go to market operating rhythm, which should he's targeted to make sure we're getting a more consistent and predictable way to grow the business. He's also this is really great is Rob's working with CK, our chief marketing officer to make sure they're combining their efforts to execute across this vertical strategy. And lastly, just to give you the scope of the change that we're making, you know, we've also leveled up our overall go to market team by adding key leadership roles and growth marketing, enablement that I mentioned on sales and technical customer success.

Speaker Change: <unk> acclimated real well so far.

Speaker Change: Infusing a ton of discipline in depth into as an example, our weekly pipeline management processes. He is working through the overall go to market operating rhythm, which should he is targeted to make sure we're getting a more consistent and predictable way to grow the business. He is also this is really great as rob's working with CK.

Speaker Change: Our chief marketing officer to make sure they are combined and their efforts to execute across this vertical strategy and lastly, just to give you the scope of the change that we're making you know we have also leveled up our overall go to market team by adding key leadership roles and growth marketing.

Speaker Change: <unk> that I mentioned on sales and technical customer success.

Neil Barua: We've, you know, exited a number of people that we talked about in Q1, we've removed layers, we're starting to add quota carrying salespeople over the course of this year. And we've elevated really great veteran PTCers to prominent roles as well. All the reason I give you that backdrop, Siti, and the team here is because that work will, in the execution now of all the foundation laying that we did in Q1, will now allow for the next few quarters for us to start working that flywheel to get us running at the pace that I believe is the potential of this company.

Speaker Change: You know exited a number of people that we talked about in Q1, we removed layers, we're starting to add quota carrying salespeople over the course of this year and we've elevated really great veteran DTC or is to prominent roles as well.

The reason I give you that backdrop city and the team here is because that work well and the execution now all the foundation laying that we did in Q1 will now allow for the next few quarters for us to start work in that flywheel to get us running at the pace that I believe has the potential.

Speaker Change: This company and so far we feel good about it but work is ahead of us and we're feeling compelled around the opportunity around them on your second question around macro.

Neil Barua: And so far we feel good about it, but work is ahead of us and we're feeling compelled around the opportunity around it.

Neil Barua: On your second question around macro, yes, of course, we look at the PMI. Of course, we wake up like it's Christmas morning when we see a PMI tick over 50. But that being said, what we look at is the pipeline, which Kristian talked about. We feel really good about the back half pipeline, the size of the deals, the quality of the deals. And I'm even more energized by the fact that now that we're putting a greater discipline around the go-to-market changes, how we can add even greater pipeline opportunities. And the summary of when the macro gets better, when I'll stop saying it's a sluggish sales environment, is when we can predictably have higher close rates on an already really good pipeline.

Speaker Change: Yes of course, we look at the PMI of course, we wake up like it's Christmas morning, when we see a P. M. I took over 50, but that being said what we look at is the pipeline, which Christian talked about we feel really good about the back half pipeline the size of the deals the quality of the deals and I'm.

Speaker Change: Even more energized by the fact that now that we're putting a greater discipline around the go to market changes, how we can add even greater pipeline opportunities and the summary of when the macro gets better what I'll stop saying its a sluggish sales environment is when we could predictably have higher close rates on already.

Speaker Change: Really good pipeline, that's what we're looking at we'll obviously watch every metric out there from a macro perspective, but internally. That's that's the laser focus we continue to look at when we see the macro changing to our favor.

Neil Barua: That's what we're looking at. We'll obviously watch every metric out there from a macro perspective, but internally, that's the laser focus we continue to look at when we see the macro changing to our favor.

Speaker Change: No I appreciate the color and all the Linkedin posts.

Tyler Radke: We appreciate the great caller and all the LinkedIn posts. The next question comes from Tyler Radke with Citi. Your line is open. Hi, thanks. This is Peter on the line for Tyler.

The next question comes from Tyler Radke with Citi. Your line is open.

Speaker Change: Hi, Thanks. This is Peter on the line for Tyler.

Operator: In your presentation, there's an example of a MedTech Windchill customer expanding their seats from 10 to 15% to over 50%. Just curious, how much of the opportunity is there still left, like within the existing PLM customer base to see T-County expansion, like outside of that core engineering team and like dive deeper into other departments, whether that's like quality, supply chain and manufacturing? Yeah, there's a reason why I start every call since I started last February around PLM and the opportunity there. The expansion of PLM and every call we've been talking about, examples of customers that are now seeing the value of PLM being enterprise-driven, not just a CAD depository, a repository tool, a PDM-like tool.

Speaker Change: In your presentation. There is an example of a med tech when so customer expanding their seats from 10% to 15% to over 50% just curious how much of the opportunity is there still left like within the existing customer.

Speaker Change: Customer base to <unk>.

Speaker Change: He county expansion.

Speaker Change: How did that core engineering team in like Nike bring to other departments, whether that's high quality supply chain and manufacturing.

Speaker Change: Yeah Theres a reason why I start every call since I started last February around P. L M and the opportunity there the expansion of P. L. M and every call. We've been talked about examples of customers that are now seeing the value of <unk> being enterprise driven not just.

Speaker Change: CAD depository, a repository tool a PDF <unk> tool is now becoming enterprise <unk> and we have a significant opportunity across our already existing base of customers that are still at early or mid stages of expanding <unk> to all the seats like this.

Neil Barua: It is now becoming enterprise PLM. And we have a significant opportunity across our already existing basic customers that are still at early or mid stages of expanding PLM to all the seats like this example customer did. So that is the reason why we're pushing on all cylinders to get enterprise PLM known and integrated with what they could also do with CodeBeamer as a very critical value prop to our customers. So this is the area that we feel very energized, and it gets even better when we create the vertical approach to how automotive companies are using Windchill to expand their utilization of product data moving faster through the enterprise.

Speaker Change: Example, customer did so that is the reason why we're pushing on all cylinders to get enterprise BLM known and integrator with what they can also do with code Bema is a very critical value prop to our customers. So this.

Speaker Change: This is the area that we feel very energized and it gets even better when we create the vertical approach to how automotive companies are using windshields expand their utilization of product data moving faster to their enterprise how does.

Neil Barua: How does a federal aerospace company think about that? And we're really advancing that, and we're just needing to prove it out to more customers to expand. That is a clear priority of the business.

Speaker Change: Federal Aerospace company think about that and we're really advancing that and we're just needing to prove it out to more customers to expand that is a clear priority of the business.

Speaker Change: The next question comes from Steve Tusa of Jpmorgan. Your line is open.

Steve Tusa: The next question comes from Steve Tusa of J.P. Morgan. Your line is open. Hey, thanks for coming in.

Steve Tusa: Hey, Thanks for fitting me in.

Speaker Change: Yeah.

Speaker Change: Okay.

Neil Barua: I wish I got as excited as you guys do about macro data, like Christmas morning with the ISM or the PMI. On the macro front, how are you seeing, you know, the focus on AI impact decisions and budgets more specifically than just, you know, what normally happens at this time of year on budgets? You know, within our space, and I talked to this last, I think last quarter of the quarter before, Steve, most of our customers still need to make sure that they have a structured data set by which you could apply AI to. So like, as per the prior question, when you don't have enterprise PLM and a number of your engineers and supply chain folks or human folks still use antiquated systems or spreadsheets for data flows around product data, it's very hard to apply generative AI.

Speaker Change: I wish I got that as excited as you guys do about the macro data like Christmas morning, with ASM with PMI.

Speaker Change: On on the macro front how are you seeing.

Speaker Change: The focus on AI impact.

Speaker Change: Sessions and budgets more specifically than just.

Speaker Change: What what normally happens at this time of year on budgets.

Speaker Change: Within our space and that he talked to this last I think last quarter the quarter before Steve most of our customers still need to make sure that they have a structured dataset by which you could apply AI too so like as per the prior question. When you don't have enterprise P. A lab and a number of your engineer.

Speaker Change: Years, and supply chain folks for Kieran folks still use antiquated systems and spreadsheets for data flows around product data, it's very hard to apply a generative AI. So we call. It get your digital house in order, we really feel Steve. This is why it's Christian I talked about that.

Neil Barua: So we call it get your digital house in order. We really feel, Steve, this is why Kristian and I talked about the robust pipeline we see in the second half of the year, that is inspired by the fact that people need to get going on getting PLM systems across their enterprise, get CodeViewer deployed, make sure they have 2D models moved to 3D and model-based definition across their CAD drawings. What's really interesting is when we add the AI concepts of CodeBeamer, as an example, that we're really going to be stoking the flames with to make sure people understand the real value here at HMI, it then creates a necessity for the customer to deploy CodeBeamer on their underlying requirements management capabilities so that they actually can get the benefit of a generative AI tool like CodeBeamer AI that we're launching.

Speaker Change: Robust pipeline, we see in the second half of the year that is inspired by the fact that people need to get going on getting PM systems across their enterprise get cold beer deployed make sure. They have two D models moved to three D and model based definition across their CAD drawings, and what's really interesting is when we add.

Speaker Change: The AI concept of code Beamer as an example that we're really going to be a stope.

Speaker Change: Stoking the claims with to make sure people understand the real value here at H M I.

Speaker Change: Then creates a necessity for the customer to deploy deploy code beamer on their underlying requirements management capabilities. So that they actually can get the benefit of a generative AI tool like could be more AI that we're launching so Steve I actually think it's a good benefit for us because it's creating our customer base.

Steve Tusa: So, Steve, I actually think it's a good benefit for us because it's creating our customer base to get their digital house in order. And now with our additional AI offerings, which we have a secret sauce to give to them in concert with them, I think we're in a good spot. Great, thanks for the color.

Speaker Change: To get their digital house in order and now with our additional AI offerings, which we have a secret sauce to give to them in concert with them I think we're in a good spot.

Speaker Change: Great. Thanks for the color.

Speaker Change: Yeah.

Joshua Tilton: The next question comes from Joshua Tilton with Wolf Research. Your line is open. Hi, this is Arsenije on for Josh Tilton. Just had a question really on the NENURR performance. Look, it was within the range of guidance, but even after adjusting for the timing impact and for NURR, it looked like it was below year-over-year, irrespective of the environment, not really changing, still mixed. I guess what occurred, is there some under-performance in the channel versus expectations, or is it just kind of exactly within what you were expecting even on the channel front and expected still better visibility with growth recovering in the back half?

Speaker Change: The next question comes from Joshua Tilton with Wolfe Research Your line is open.

Speaker Change: Hi, This is <unk> on for Josh Tilton, just had a question really on the net are our performance look it was within the range of guidance, but even after adjusting for the timing impact then for there are it looks like it was below year over year irrespective of the environment not really changing still mix I guess what occurred or is there some underperformance in the channel versus <unk>.

Speaker Change: Spectation or is it just kind of exactly within what you were expecting even on the channel front end expected still better visibility with growth recovering in the back half.

Joshua Tilton: Thanks.

Speaker Change: Thanks.

Speaker Change: Let me start and then Christian this quarter, we guided towards the number and we came in thereabouts.

Kristian Talvitie: Let me start, and then Christian. This quarter, we guided towards the number and we came in thereabouts. Even from an internal expectation, we saw this. We took into account the pipeline, the sluggish sales environment, obviously all the changes we're making go to market, and we structured a guidance as such. So we're past Q1. It was as expected from our perspective. What we're really focused in on is, let's get the machinery working, as I mentioned, on the go-to-market side. Let's get these product releases out, messaged, and customers really buying into it, by which, when Rob and CK get the go-to-market transformation really humming, that I mentioned in the tail end of this year, second half of this year, we have a real rhythm to close out already a robust pipeline and keep adding to it, by which we can now really see a sustainable path for low double-digits AR growth as we go into next year, which has been our medium and long-term targets.

Speaker Change: Even from an internal expectation we saw this we took into account the pipeline the sluggish sales environment. Obviously, all the changes we're making in go to market and we structure our guidance as such so where we're past Q1. It was unexpected from our perspective, we're really focused in on is <unk>.

Speaker Change: Get them machinery, working as I mentioned on the go to market side, let's get these.

Speaker Change: Product releases out message and customers really buying into it by which when Rob and CK get the go to market transformation really Harman that I've mentioned in the tail end of this year second half of this year, we have a real rhythm to closeout already a robust pipeline to keep adding to it by which we can now.

Speaker Change: Really see a sustainable path for low double digits, a our growth as we go into next year, which has been our medium and long term targets per se anything to add.

Neil Barua: Appreciate that. Yeah, just reiterating what you said, we came in pretty close to our internal targets.

Speaker Change: Yeah just.

Speaker Change: Reiterating what you said, we came in pretty close to the our internal.

Speaker Change: Targets.

Kristian Talvitie: channel actually had a strong quarter this quarter so you know all in all I think it was largely as expected.

Speaker Change: Channel actually had a strong quarter this quarter so.

Speaker Change: All in all I think it was largely as expected.

Operator: Thank you. The next question comes from Nay Say Nang of Berenberg. Your line is open. Hey guys, thanks for fitting in. I've got two questions if I may. The first one is on the go to market changes. It sounded like I just want to get a sense of whether that was ahead of what you scheduled or if everything is pretty much on track. And then a secondary question to that is that Neil, if I remember correctly, you said in the last quarter that you weren't expecting any major disruptions of sales from these go-to-market changes. Now that it's been a quarter, can we get an update on that from please?

Speaker Change: Got it thank you.

Speaker Change: Sure.

Speaker Change: The next question comes from May say lung of band back Your line. Your line is open.

Speaker Change: Hey, guys. Thanks for fitting me in two questions if I may on the.

Speaker Change: Go to market changes.

Speaker Change: Sounded like.

Speaker Change: Yeah.

Speaker Change: One of the good progress.

Speaker Change: Q1, I just want to get a sense of where they are.

Speaker Change: It was ahead of what you've said.

Speaker Change: It's pretty much on track and then secondary question to that is that.

Speaker Change: I think if I remember correctly, you said the fortunate that.

Speaker Change: Expected any major disruptions.

Speaker Change: Some of these go to market changes now that it's been a quarter.

Speaker Change: Can we get an update on that please.

Sure in terms of where we are in the transformation.

Nay Naing: Sure, in terms of where we are in the transformation versus where we thought, I'm pleased with where we're at. Obviously, I would have liked Rob to join a month earlier when I did, you know, some of the folks that moved out of the company come in. We had a month gap before he joined back in December, but he's hit the ground running in December and the team didn't wait for him to get here and he was really well acquainted with the plan. So, in all, in general, I would say in a very specific project plan that we've had for this transformation, I feel good that we accomplished a lot of the foundation laying Q1.

Speaker Change: Where we thought.

Speaker Change: I'm pleased with where we're at obviously I would've liked to join a month earlier.

Speaker Change: I did some of the folks that moved out of the company come in we had a month gap before he joined back in December but he has hit the ground running in December and the team didn't wait for them to get here and he was really well acquainted with the plan. So in all in general I would say very specific project plan that we've had for this.

Speaker Change: For this transformation I feel good that we accomplish a lot of the foundation laying Q1 now we've had our kickoff in January to get now that the account transitions are dawn comp plans around we've really if youre watching Linkedin again, we've really had a good time kind of launching all of this.

Neil Barua: Now, we've had our kickoffs in January to get, you know, now that the account transitions are done, comp plans are out, we've really, if you're watching LinkedIn again, we've really had a good time kind of launching all this in the January timeframe. And as I mentioned, the reason for why we're talking about the next few quarters is now the framework, the operational discipline Rob's bringing to bear, the vertical approach, we believe that that just will take some time to catch rhythm. It could happen faster, but my experience would say it takes a few quarters to really get the machinery moving here.

Speaker Change: In the January timeframe and as I mentioned.

Speaker Change: The reason for why we're talking about the next few quarters is now the framework the operational discipline rob's, bringing to bear the vertical approach.

Speaker Change: We believe that that just will take some time to casper or it could happen faster, but my experience would say it takes a few quarters to really get the machinery moving here.

Neil Barua: In terms of disruption, what I'd say is we made a lot of changes in Q1 and, you know, the different approach that Rob is taking and CK is taking around this vertical piece is change. And when we thought about this, this is why we proactively came out to you last quarter and said, look, like in our guidance, we are going to have a framework by which there should be a level of impact from the go-to-market changes, in addition to our estimation that the macro remains sluggish. And that's why we came to that 9 to 10% AR range that we reiterate again on the call today for the year.

Speaker Change: In terms of disruption what I'd say is we made a lot of changes in Q1, and you know the different approach that Rob is taking and CK taken around this vertical piece is change and when we thought about this this is why we proactively came out to you last quarter and said look like in our guidance we are.

Speaker Change: Gonna have a framework by which there shouldn't be a level of.

Speaker Change: Impact from the go to market changes in addition to our estimation that the macro remains sluggish and that's why we came to that 9% to 10% range that we reiterated again on the call today for the year.

Speaker Change: Got it all makes sense. Thank you very much one quick question, if I could squeeze it right.

Operator: Well, it all makes sense. Thank you very much.

Operator: One quick question, if I could squeeze in, if that's alright. The AI product launches are upcoming, more tough, more fun, very exciting. But are they going to be limited to just CodeBeaver and ServiceMac? Or will that be across your entire product portfolio? Like I, great question. Stay tuned. The ServiceMax is the first one out of the gate. CodeBeamer is a big element that we've been working on that at Hannover Messe, we'll be spending a lot more time on. Obviously, as you know, we've been spending time working on this with Volkswagen Microsoft. We're working through a windshield applied AI element around parts reuse.

Speaker Change: Product launches upcoming.

Speaker Change: Sounds very exciting.

Speaker Change: Are they going to be limited to just go deeper and Tim It's Mike will not be across your entire portfolio.

Speaker Change: Great question stay tuned the service Max's first one out of the Gate code Beamer is a big.

Speaker Change: Element that we've been working on that at Hanover methane will be.

Spending a lot more time on obviously as you know we've been spending time working on this with Volkswagen Microsoft We're working through a windshield applied AI AR element around parts reuse unshaped has been doing a lot of work on this so stay tuned on that.

Neil Barua: Onshape has been doing a lot of work on this. So stay tuned on that. And we got a few more up in the hopper, but we're really focusing on the core areas right now and learning from a very innovative technology that's moving. So we're learning around that in conjunction with our customers. That's really important here to show real value versus just a marketing message.

Speaker Change: And we got a few more in the hopper, but we're really focusing on the core areas right now and learning from them very innovative technologies that's moving.

Speaker Change: So we're learning around that in conjunction with our customers. That's really important here to show real value versus just the marketing message.

Speaker Change: Sounds good thank you and we look forward to it.

Saket Kalia: Thank you, we look forward to it. The next question comes from Saket Kalia of Barclays. Your line is open. Okay, great. Hey guys, thanks for taking my question here.

Soket Keller: The next question comes from socket Keller of Barclays. Your line is open.

Soket Keller: Okay, Great Hey, guys. Thanks for thanks for taking my question here and fitting me in as well.

Saket Kalia: Hey guys, Kristian, maybe for you and Neil, please feel free to chime in here. So I want to go back to kind of the five pillars that Neil, you talked about in your Right. So, so clearly there are a few higher growth parts of the business. like an ALM or an SLM or a SAS part of the business just because of their scale, right? I think the strong competitive position drives solid growth in PLM and CAD, but it feels like those three segments have the potential to grow faster. Maybe the question is, where are those businesses in their evolution, in terms of in terms of being more additive to growth?

Soket Keller: Question, maybe hey, guys.

Soket Keller: Kristian maybe for you Aneel. Please please feel free to chime in here and right. So I wanted to go back to kind of the five pillars that Neal you talked about in your prepared comments Ryan. So so clearly there are a few higher growth parts of the business like in a L. M. R. S. L M or SaaS part of the business just because of their scale rain I think there was there.

Soket Keller: The strong competitive position drives solid growth in PNM and CAD, but it feels like those three segments have the potential to grow faster.

Soket Keller: Maybe the question is where are those businesses in their evolution in terms of in terms of being more additive to growth.

Neil Barua: And then maybe the other side of that coin, how much of a drag are some of the businesses that maybe aren't those pillars anymore, like an IoT? There's a lot of moving parts to that question, but does that make sense? Yeah.

Soket Keller: And then maybe the other side of that coin how much of a drag or are some of the businesses that maybe aren't those pillars anymore like in Iot for example.

Soket Keller: There are a lot of moving parts in that question, but does that makes sense.

Soket Keller: Yeah.

Neil Barua: Well, let me take the front end and then Kristian can add any color here. I just want to be clear, I the PLM and the and the ability for us to expand seats like we mentioned in this customer example, There's a lot of room for us to grow with a best-in-class PLM offering in the marketplace, bar none, in my opinion, and I think in our customers' When integrated with CodeBeamer, our ALM suite, we believe that there is a real strong growth potential for those two boats to rise in a significant manner that really creates a differentiated value to the end customer.

Speaker Change: Let me, let me take the front end and then Christian can add any color here.

Soket Keller: Just wanted to be clear.

Soket Keller: The Pls and.

Soket Keller: And the ability for us to expand seats like we mentioned in this customer example.

Soket Keller: Hi.

Soket Keller: There's a lot of room for us to grow with our best in class P. L M offering in the marketplace bar, none in my opinion and I think in our customers' opinion.

Soket Keller: When integrated with code Beamer arc Aon's suite, we believe that there is a real strong growth potential for those to both survive in a significant manner that really creates a differentiated value to the end customer so.

Neil Barua: So I just wanna be clear, PLM is part of a very strong growth driver of the business, and we just see many more potentials for that to increase in growth rate as we get this vertical approach right, as we get the messing around EPLM really structured in the marketplace. So I'm just not, and we're not just relying on ALM, SLM, and SAS to be the inflectors of accretive growth. PLM actually will pull its weight, and then some, in our view, in terms of the approach that we're taking. In terms of the drag, you mentioned some of them, as I indicated on windshield navigate, view work instructions, where we're extending 3D digital work instructions from PLM to shop floor, guess what?

Soket Keller: Just wanted to be clear P. O M. As part of a very strong growth driver of the business and we just see many more potential for that to increase in growth rate as we get this vertical approach right as we get the messaging around E. P. O M really structure in the marketplace. So.

Soket Keller: I'm, just not and we're not just relying on a L. M. S. L M to SaaS to be the inflections of accretive growth Peel them actually will will pull its way and then some in our view in terms of the approach that we're taking in terms of the drag you mentioned some of them.

Soket Keller: And as I indicated a windshield navigate.

Soket Keller: View work instructions, where we're extending <unk> digital work instructions will appear on the shop floor guess, what we're using thing works technology to do that and if you recall nine months ago, We took a number of resources from the Standalone Biz.

Neil Barua: We're using ThingWorx technology to do that. And if you recall, nine months ago, we took a number of resources from the standalone businesses and moved them to make sure that the great technology of ThingWorx actually allowed customers to expand PLM and provide more value to different personas. We're doing the same on some of those other products that don't really do as well versus our core growth rates to make sure we augment our core growth rates with better capabilities using some of those technologies. That's how we're thinking about it from a perspective of how we're interfacing with our customers and organizing ourselves internally.

Soket Keller: Businesses and move them to make sure that the great technology of thing works actually allowed customers to expand pls and provide more value to different personas. We're doing the same on some of those other product sets that don't really.

Soket Keller: Do was well versus our core growth rates to make sure we augment our core growth rates with better capabilities using some of those technologies. That's how we're thinking about it from a perspective of how we're interfacing with our customers and organizing ourselves internally Christian.

Kristian Talvitie: Christian. No? Good. That's super clear, guys. Thank you very much.

Christian I: Oh good.

Christian I: That's super clear guys. Thank you very much.

Christian I: This concludes the question and answer session. Please remain connected as they turn it to Neil for closing remarks.

Neil Barua: This concludes the question and answer session. Please remain connected as I turn it to Neil for closing remarks. Thank you everyone for joining us and for your questions today. In February, Kristian will attend the Baird Conference in Park City, Utah, and Matt will attend the Wolf Conference in New York. In March, I'll be in San Francisco attending the Morgan Stanley Conference together with Kristian and Matt. Also in March, Kristian and Matt will participate in two additional conferences, the Loop Conference, which will be virtual, and the Stiefel Conference in New York.

Speaker Change: Thank you everyone for joining us and for your questions today and February Christian will tend to burn conference in Park City, Utah, and Matt will attend the Wolfe Conference in New York in March I'll be in San Francisco attending the Morgan Stanley Conference together with Christian and Matt also in March Christian Matt will participate.

And two additional conferences, the loop conference, which will be virtual and the Stifel Conference in New York, Thanks, again, and we look forward to engaging with you.

Neil Barua: Thanks again and we look forward to engaging with you.

Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.

Operator: This concludes today's conference call. Thank you for joining.

Operator: You may now disconnect.

Speaker Change: Okay.

Speaker Change:

Speaker Change:

Speaker Change: