Q2 2025 PTC Inc Earnings Call

His presentation, all parties will be in a listen only mode.

Matt Shemale: Following the presentation. The conference will be opened for questions I would now like to turn the call over to Matt Shemale P. D C. As head of Investor Relations. Please go ahead.

Matt Shemale: Good afternoon.

Speaker Change: Thank you Kate and welcome to Ptc's, 2022nd quarter Conference call.

Neil: On the call today are Neil <unk>, Chief Executive Officer, Kristian, Talvitie, Chief Financial Officer, and Robert <unk>, Chief Revenue Officer. Today's conference call is being broadcast live through an audio webcast and a replay of the call will be available later today at Www Dot P. T C dot com.

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

Speaker Change: Annual report on Form 10-K Form 10-Q, and other filings with the U S Securities and Exchange Commission as well as in today's press release.

Speaker Change: The forward looking statements, including guidance provided during this call are valid only as of today's date April 32025, and PTC assumes no obligation to update these forward looking statements.

Speaker Change: During the call PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. 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: With that I'd like to turn the call over to Ptc's, Chief Executive Officer, Neil Barbara. Thank you, Matt and good afternoon, everyone.

Speaker Change: Q2 was a solid quarter of execution for P. D. C. We delivered 10% <unk> growth at 13% and free cash flow growth year over year. We also made progress delevering our capital structure. As we said we would in February we paid down $500 million of senior notes.

Speaker Change: We're do.

Speaker Change: With our leverage ratio now at one five times and continued visibility to solid cash generation. We continued share buybacks in Q2 and expect to remain active under our $2 billion share repurchase authorization.

Speaker Change: Our Q2 results reflected solid execution across our five focus areas.

Speaker Change: A L M SLM CAD in SaaS.

Speaker Change: Across our geographic regions and verticals, our customers reinforce the importance of PTC software to accelerate time to market produce higher quality products and manage complexity across their businesses.

Speaker Change: Q2 customer wins included significant windchill appeal on expenses at a med Tech company and also at the Aerospace Division of a large European industrial conglomerate.

Speaker Change: A new code fever, a L M multiple.

Speaker Change: Multiple wins with global automotive Oems in Japan, India and Europe.

Speaker Change: Service box SLM cross sell win at a global Industrial company and lastly, a game changing krio, CAD and windchill <unk> expansion with a well known aerospace and defense company.

Speaker Change: You could read more about these wins in our appendix slides.

Speaker Change: Our Q2 execution gives us confidence in the progress of our go to market transformation.

Speaker Change: We said on our last earnings call that the foundation was laid in Q1 and Q2 was the start of the team finding its new rhythm.

Speaker Change: This is playing out as expected as we're seeing higher quality pipeline velocity solid hiring and enablement of quota bearing reps and more consistent execution.

Speaker Change: I credit our go to market leadership team for their relentless focus on driving this transformation.

Speaker Change: I'm more confident today than I was at the beginning of the year, given our progress and be assured we are continuing to press harder.

Speaker Change: We also advanced our product portfolio and generative AI initiatives across all five focus areas, including.

Speaker Change: And we.

Speaker Change: We publicly previewed windchill AI at the Hanover, MSA trade show in Germany.

Speaker Change: And that could be worth three dot O is now <unk>.

Speaker Change: SL App, we introduced service Vacs AI and in Cat, we launched unshaped, AI adviser and unsafe government.

Speaker Change: In April we bought a great company called inquiry labs that brings development and deep technical talent to accelerate our product roadmap and a L M GLM and critical integrations between the two.

Speaker Change: Overall, Q2 was a solid quarter supporting our customers, making progress on initiatives like our go to market transformation and advancing our market leading product portfolio and generative AI strategy.

Chair, Conference: Chair, Conference.

Chair, Conference: During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

For their relentless focus on driving this transformation.

I am more confident today than I was at the beginning of the year given our progress.

Speaker Change: We're still in the early phases of digital transformation across our customer base and there is no question about the critical role of PTC will play in these transformations over the medium and long term.

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

And be assured we are continuing to press harder.

We also advanced our product portfolio and generative AI initiatives across all five focus areas, including <unk>.

Matthew Shimao: Good afternoon. Thank you, Kate, and welcome to PTC's 2025 Second Quarter Conference Call. On the call today are Neil Barua, Chief Executive Officer, Kristian Talvitie, Chief Financial Officer, and Robert Dahdah, Chief Revenue Officer.

Speaker Change: Now turning to the near term as we discussed last quarter, we entered the second half with a strong pipeline.

In <unk>.

We publicly previewed windchill AI at the Hanover, MSA trade show in Germany.

Speaker Change: That pipeline remains intact, and we have not yet seen material changes in customer behavior. However, we recognize growing uncertainty related to global trade dynamics and macro pressures, which affect our customers.

In our <unk> three <unk> is now <unk>.

And SL App, we introduced service <unk> AI and in Cat, we launched unshaped AI adviser and unsafe government.

Matthew Shimao: Today's conference call is being broadcast live through an audio webcast and a replay of the call will be available later today at www.ptc.com. During this call, PTC will make forward-looking statements, including guidance as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found in PTC's annual report on Form 10-K, Form 10-Q, and other filings with the U.S. Securities and Exchange Commission, as well as in today's press release.

In April we bought a great company called inquiry labs that brings development and deep technical talent to accelerate our product roadmap and <unk> and critical integrations between the two.

Speaker Change: While no broad trends have emerged yet since the beginning of April.

Speaker Change: Customer conversations as a result of these dynamics are progressing in a way that suggests our prior high end of 10% is now a stretch.

Overall, Q2 was a solid quarter of supporting our customers, making progress on initiatives like our go to market transformation and advancing our market leading product portfolio and generative AI strategy.

Speaker Change: These conversations indicating increasing potential for deals in our second half to be smaller done in phases or potentially delayed.

We're still in the early phases of digital transformation across our customer base and there is no question about the critical role PTC will play in these transformations over the medium and long term.

Speaker Change: Accordingly, we have moderated the high end of our <unk> guidance to 9% growth.

Matthew Shimao: The forward-looking statements, including guidance provided during this call, are valid only as of today's date, April 30, 2025, and PTC assumes no obligation to update these forward-looking statements.

Speaker Change: Also to allow for the potential that macro conditions significantly worsen and its impact of customer buying behaviors. We are introducing a new low end of 7% of our guidance range.

Now turning to the near term as we discussed last quarter, we entered the second half with a strong pipeline.

Matthew Shimao: During the call, PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. 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: To be clear this adjustment is about the potential timing and sizing of projects not about fundamental demand.

<unk> pipeline remains intact, and we have not yet seen material changes in customer behavior. However, we recognize growing uncertainty related to global trade dynamics and macro pressures, which affect our customers.

Speaker Change: Long term need for digital transformation remains remains extremely important to our customers.

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. Q2 was a solid quarter of execution for PTC. We delivered 10% ARR growth and 13% free cash flow growth year over year. We also made progress de-levering our capital structure as we said we would. In February, we paid down $500 million of senior notes that were due. With our leverage ratio now at 1.5x and continued visibility to solid cash generation, we continue share buybacks in Q2 and expect to remain active under our $2B share repurchase authorization.

Speaker Change: Despite this our guidance adjustment our financial discipline allows us to raise the low end of our free cash flow guidance for 2025% a reflection of strong execution and profitability focus.

While no broad trends have emerged yet since the beginning of April customer conversations as a result of these dynamics are progressing in a way that suggests our prior high end of 10% is now a stretch.

Speaker Change: Christian will take you through our Q2 and updated guidance in more detail, but I'd like to make a few final points that I feel are important.

These conversations indicating increasing potential for deals in our second half to be smaller done in phases or potentially delayed.

Speaker Change: This near term uncertainty poses questions and makes things difficult to predict but it ultimately reinforces the need for digital transformation and could serve as a tailwind over the medium term the need to build a product data foundation applied generative AI to that foundation and transform.

Accordingly, we have moderated the high end of our guidance to 9% growth.

Also to allow for the potential that macro conditions significantly worsen and its impact of customer buying behaviors. We are introducing a new low end of 7% of our guidance range.

Speaker Change: Only gets heightened because of this uncertainty.

Speaker Change: Customers for their survival need to develop products faster build a more resilient supply chain and optimize aftermarket service revenue streams and Thats why PTC is exceptionally well positioned to be a leader in bringing these critical needs into reality.

Neil Barua: Our Q2 results reflected solid execution across our five focus areas, PLM, ALM, SLM, CAD, and SAS. Across our geographic regions and verticals, our customers reinforce the importance of PTC software to accelerate time to market, produce higher quality products, and manage complexity across their business. Q2 customer wins included significant windshield PLM expansions at a medtech company and also at the aerospace division of a large European industrial conglomerate. A new Code Fever ALM multiple wins with global automotive OEMs in Japan, India, and Europe. a ServiceMax SLM Crossout win at a global industrial company and lastly a game-changing Creo CAD and Windchill PLM expansion with a well-known aerospace and defense company.

To be clear this adjustment is about the potential timing and sizing of projects not about fundamental demand.

A long term need for digital transformation remains remains extremely important to our customers.

Despite this our guidance adjustment our financial discipline allows us to raise the low end of our free cash flow guidance for 2025% a reflection of strong execution and profitability focus.

Speaker Change: We'll navigate this near term uncertainty and stay focused on the right things, helping our customers transform progressing our go to market transformation and delivering enhanced products in general have AI capabilities across our five key focus areas with that I'll turn things over to Christian.

Christian will take you through our Q2 and updated guidance in more detail, but I'd like to make a few final points that I feel are important.

Thanks, Neil and Hello, everyone.

Speaker Change: Starting off with slide six.

This near term uncertainty pose those questions and makes things difficult to predict but it ultimately reinforces the need for digital transformation and could serve as a tailwind over the medium term the need to build a product data foundation applied generative AI to that foundation and transform.

Speaker Change: As you know, we believe <unk> and free cash flow are the most important metrics to assess the performance of our business.

Speaker Change: To help investors understand our business performance, excluding the impact of FX volatility, we provide <unk> guidance and disclose our <unk> results on a constant currency basis.

Neil Barua: You can read more about these wins in our appendix slide. Our Q2 execution gives us confidence in the progress of our go-to-market transformation. We said on our last earnings call that the foundation was late in Q1 and Q2 was the start of the team finding its new rhythm. This is playing out as expected, as we're seeing higher quality pipeline velocity, solid hiring and enablement of quota-bearing reps, and more consistent execution. I credit our go-to-market leadership team for their relentless focus in driving this transformation. I am more confident today than I was at the beginning of the year given our progress.

Only gets heightened because of this uncertainty.

Speaker Change: At the end of Q2, our constant currency.

Customers for their survival need to develop products faster build a more resilient supply chain and optimize aftermarket service revenue streams and that's why PTC is exceptionally well positioned to be the leader in bringing these critical needs into reality.

Speaker Change: Using our fiscal 'twenty five plan FX rates.

Speaker Change: <unk> 2.3, $2 6 billion up 10% year over year.

Speaker Change: In Q2, our free cash flow was up 13% year over year.

Speaker Change: As we continued to invest in our key focus areas.

We'll navigate this near term uncertainty and stay focused on the right things, helping our customers transform progressing our go to market transformation and delivering enhanced products in general have AI capabilities across our five key focus areas with that I'll turn things over to Christian.

Speaker Change: Note that the $279 million of free cash flow we generated.

Speaker Change: Also absorbed $3 million of outflows related to our go to market realignment.

Speaker Change: Turning to slide seven.

Speaker Change: Let's look at our constant currency growth in more detail.

Christian: Thanks, Neil and Hello, everyone.

Neil Barua: And be assured, we are continuing to press harder. We also advance our product portfolio and generative AI initiatives across all five focus areas, including in PLM, we publicly previewed Windchill AI at the Hannover Messe trade show in Germany. In ALM, CodeBeamer 3.0 is now GA. In SLF we introduce ServiceMax AI and in CAD we launch Onshape AI Advisor and Onshape Government. In April, we bought a great company called Inquiry Labs that brings development and deep technical talent to accelerate our product roadmap in ALM, PLM, and critical integrations between the two. Overall, Q2 was a solid quarter of supporting our customers, making progress and initiatives like our go-to-market transformation and advancing our market-leading product portfolio and generative AI strategy.

Speaker Change: Looking at our product groups.

Christian: Starting off with slide six.

Speaker Change: Our AOR growth was 8% in cat, driven primarily by cryo and 11% in <unk>, driven by Windchill code Beamer and Iot.

Christian: As you know, we believe <unk> and free cash flow are the most important metrics to assess the performance of our business.

Christian: Help investors understand our business performance, excluding the impact of FX volatility, we provide our guidance and disclose our IRR results on a constant currency basis.

Speaker Change: On a year over year basis constant currency <unk> grew by 9% in the Americas, 11% in Europe, and 10% in Asia Pacific.

Christian: At the end of Q2, our constant currency are using our fiscal 'twenty five plan FX rates.

Speaker Change: Moving to slide eight.

Speaker Change: We ended Q2 with cash and cash equivalents of $235 million.

Christian: Does 2.3, $2 6 billion up 10% year over year.

At the end of Q2 gross debt was 1.3 dollars 93 billion and we were one five times levered.

Christian: In Q2, our free cash flow was up 13% year over year as we continued to invest in our key focus areas.

Speaker Change: We continued to diligently pay down our debt in Q2, with our gross debt balance decreasing by $155 million.

Christian: Note that the $279 million of free cash flow we generated.

Speaker Change: And as expected we retired $500 million of senior notes that were due in February with the draw on our revolver and cash on hand.

Christian: Also absorbed $3 million of outflows related to our go to market realignment.

Christian: Turning to slide seven.

Christian: Let's look at our constant currency growth in more detail.

Speaker Change: In addition, we continued the disciplined and consistent execution of our $2 billion share repurchase program and in Q2, we used $75 million of cash to repurchase 463000 shares of our common stock.

Neil Barua: Still in the early phases of digital transformation across our customer base and there's no question about the critical role PTC will play in these transformations over the medium and long term. Now turning to the near term, as we discussed last quarter, we entered the second half with a strong pipeline. That pipeline remains intact. And we have not yet seen material changes in customer behavior. However, we recognize growing uncertainty related to global trade dynamics and macro pressures, which affect our customers. While no broad trends have emerged yet, since the beginning of April, customer conversations as a result of these dynamics are progressing in a way that suggests our prior high end of 10% is now a stretch.

Christian: Looking at our product groups.

Christian: Our <unk> growth was 8% and cat driven primarily by krio and 11% in <unk>, driven by Windchill code Beamer and Iot.

Speaker Change: Given the consistency and predictability of our free cash flow generation, we aim to maintain a low cash balance.

Christian: On a year over year basis constant currency <unk> grew by 9% EMEA Americas, 11% in Europe, and 10% in Asia Pacific.

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

Moving to slide eight.

Speaker Change: The share repurchase authorization, we now have in place gives us a lot of flexibility in how we do that.

Christian: We ended Q2 with cash and cash equivalents of $235 million.

Christian: At the end of Q2 gross debt was 1.3 dollars 93 billion and we were one five times levered.

Speaker Change: In line with what we said previously we currently intend to buy back approximately $300 million of our common stock in fiscal 'twenty five with another approximately $75 million of repurchases expected in Q3.

Christian: We continued to diligently pay down our debt in Q2, with our gross debt balance decreasing by $155 million.

Speaker Change: 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.

Neil Barua: These conversations indicate an increasing potential for deals in our second half to be smaller, done in phases, or potentially delayed. Accordingly, we have moderated the high-end of our ARR guidance to 9% growth. Also, to allow for the potential that macro conditions significantly worsen and its impact to customer buying behaviors, we are introducing a new low end of 7% to our guidance range. To be clear, this adjustment is about the potential timing and sizing of projects, not about fundamental demand. The long-term need for digital transformation remains extremely important to our customers. Despite this AR guidance adjustment, our financial discipline allows us to raise the low end of our free cash flow guidance for 2025, a reflection of strong execution and profitability focus.

Christian: And as expected we retired $500 million of senior notes that were due in February with a draw on our revolver and cash on hand.

Christian: In addition, we continued the disciplined and consistent execution of our $2 billion share repurchase program and in Q2, we used $75 million of cash to repurchase 463000 shares of our common stock.

Speaker Change: Yeah.

Speaker Change: With that I'll take you through our guidance on slide nine.

Speaker Change: All of the amounts on this slide are based on our fiscal 'twenty five plan FX rates as of September 32024.

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

Speaker Change: We've updated our guidance ranges for our free cash flow of revenue and EPS to reflect our first half results.

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

Speaker Change: And the potential for elevated macro uncertainty in the second half of our fiscal year.

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

Speaker Change: As Neil said uncertainty in the macro environment could result in lengthening sales cycles, and downsize deals and we've done that we've decided to take a more conservative stance on our IRR may evolve in the second half of fiscal 'twenty five.

Christian: In line with what we said previously we currently intend to buy back approximately $300 million of our common stock in fiscal 'twenty five with another approximately $75 million of repurchases expected in Q3.

Neil Barua: Kristian will take you through our Q2 and updated guidance in more detail, but I'd like to make a few final points that I feel are important. This near-term uncertainty poses questions and makes things difficult to predict, but it ultimately reinforces the need for digital transformation and could serve as a tailwind over the medium-term. The need to build a product-data foundation, apply generative AI to that foundation, and transform only gets heightened because of this uncertainty.

Speaker Change: I'll get into more detail on our constant currency guide on the next two slides.

Christian: 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.

Speaker Change: On free cash flow, we've raised the low end of our guidance for the year by $5 million $840 million as a reminder, our fiscal 'twenty five free cash flow guidance of $840 to $850 million absorbs approximately $19 million of cash outflows for severance and consulting fees related to.

Christian: Yeah.

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

Christian: All of the amounts on this slide are based on our fiscal 'twenty five plan FX rates as of September 32024.

Speaker Change: Our go to market realignment.

Neil Barua: Customers, for their survival, need to develop products faster, build a more resilient supply chain, and optimize aftermarket service revenue. And that's why PPC is exceptionally well-positioned to be the leader in bringing these critical needs into reality. We will navigate this near-term uncertainty and stay focused on the right things, helping our customers transform, progressing our go-to-market transformation, and delivering enhanced products and generative AI capabilities across our five key focus areas.

Speaker Change: For Q3, we're guiding for free cash flow of $230 million to $235 million, which absorbs approximately $4 million of cash outflows related to our go to market realignment.

Christian: We've updated our guidance ranges for our free cash flow of revenue and EPS to reflect our first half results.

Christian: And the potential for elevated macro uncertainty in the second half of our fiscal year.

Speaker Change: At this point.

Speaker Change: We have good visibility to the potential range of free cash flow for fiscal 'twenty five for a few reasons.

Speaker Change: As Neil said uncertainty in the macro environment could result in lengthened sales cycles and downsized deals and we've just we've decided to take a more conservative stance on how may evolve in the second half of fiscal 'twenty five.

Speaker Change: First and foremost we've already generated approximately 60% of our full year free cash flow in the first half.

Speaker Change: Also remember that Q4 is seasonally our lowest cash generation.

Kristian Talvitie: With that, I'll turn things over to Kristian. Thanks, Neil, and hello, everyone.

Speaker Change: I'll get into more detail on our constant currency guide on the next two slides.

Speaker Change: Quarter.

In fiscal 'twenty, five we expect largely similar invoicing seasonality compared to previous years and by the end of Q3, we'll have already built most of what we expect to collect for the remainder of this year.

Kristian Talvitie: starting off with slide six. 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 Q2, our constant currency, ARR, using our fiscal 25 plan FX rates, was $2.326 billion, up 10% year over year. In Q2, our free cash flow was up 13% year over year as we continued to invest in our key focus areas.

Speaker Change: On free cash flow, we've raised the low end of our guidance for the year by $5 million $840 million as a reminder, our fiscal 'twenty five free cash flow guidance of $840 million to $850 million absorbs approximately $19 million of cash outflows for severance and consulting fees related to.

Speaker Change: If we see a significant impact to pass through customer demand. Later. This year, you can expect us to respond with disciplined cost controls.

Speaker Change: Our go to market realignment.

Speaker Change: In addition costs associated with customer demand for example, with commissions and royalties would naturally come in lower thereby mitigating.

Speaker Change: For Q3, we're guiding for free cash flow of $230 million to $235 million, which absorbs approximately $4 million of cash outflows related to our go to market realignment.

Speaker Change: The impact to our fiscal 'twenty five free cash flow.

Speaker Change: It's worth pointing out that our free cash flow guidance is not on a constant currency basis. So it's important to be mindful of FX volatility.

Speaker Change: Yeah.

Speaker Change: At this point.

Speaker Change: We have good visibility to the potential range of free cash flow for fiscal 'twenty five for a few reasons.

Kristian Talvitie: Note that the $279 million of free cash flow we generated also absorbed $3 million of outflows related to our go-to-market realignment.

Speaker Change: Approximately 45% of our IRR 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 that said significant FX <unk>.

Speaker Change: First and foremost we've already generated approximately 60% of our full year free cash flow in the first half.

Speaker Change: Also remember that Q4 is seasonally our lowest cash generation.

Kristian Talvitie: Turning to slide 7, let's look at our constant currency ARR growth in more detail. looking at our product group. Our ARR growth was 8% in CAD, driven primarily by Creo, and 11% in PLM, driven by Windchill, CodeBeamer, and IoT. On a year-over-year basis, constant currency ARR grew by 9% in the Americas, 11% in Europe, and 10% in Asia Pacific.

Speaker Change: Quarter.

Speaker Change: In fiscal 'twenty, five we expect largely similar invoicing seasonality compared to previous years and by the end of Q3, we'll have already build most of what we expect to collect for the remainder of this year.

Speaker Change: <unk> can still have an impact.

Speaker Change: We will see how FX rates move as we progress through the year, but at this point, we're comfortable with our free cash flow guidance for Q3 and fiscal 'twenty five because of the levers that we have and continue that continue to be fully within our control.

Speaker Change: If we see a significant impact to cut through customer demand. Later. This year, you can expect us to respond with disciplined cost controls.

Speaker Change: In addition costs associated with customer demand for example, with commissions and royalties would naturally come in lower thereby.

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

Kristian Talvitie: Moving to slide eight. We ended Q2 with cash and cash equivalents of $235 million. At the end of Q2, gross debt was $1.393 billion, and we were 1.5 times leveraged. We continue to diligently pay down our debt in Q2, with our gross debt balance decreasing by $155 million. And as expected, we retired 500 million of senior notes that were due in February with a draw on our revolver and cash on hand. In addition, we continued the disciplined and consistent execution of our $2 billion share repurchase program, and in Q2, we used $75 million of cash to repurchase 463,000 shares of our common stock.

Speaker Change: Mitigating the impact to our fiscal 'twenty five free cash flow.

Speaker Change: It's worth pointing out that our free cash flow guidance is not on a constant currency basis. So it's important to be mindful of FX volatility.

Speaker Change: Over the medium term we expect.

Speaker Change: Our free cash flow to grow faster than our IRR with our non-GAAP operating expenses expected to grow at roughly half the rate of IRR.

Speaker Change: Approximately 45% of our IRR 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 that said significant FX <unk>.

Speaker Change: A basic tenant of our subscription business model and budgeting process is that there is natural operating leverage that we benefit from as our IRR gross.

Speaker Change: Yeah.

Speaker Change: To help you with your models, we are providing revenue and EPS guidance.

Speaker Change: Moves can still have an impact.

Speaker Change: I'd like to reiterate my favorite reminder.

Speaker Change: We will see how FX rates move as we progress through the year, but at this point, we're comfortable with our free cash flow guidance for Q3 and fiscal 'twenty five because of the levers that we have and continue that continue to be fully within our control.

Speaker Change: ASC 606 makes revenue and EPS difficult to predict for PTC since we sell 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.

Kristian Talvitie: Given the consistency and predictability of our free cash flow generation, we aim to maintain a low cash balance. As such, assuming we have excess cash, we expect to return it to shareholders. The share repurchase authorization we now have in place gives us a lot of flexibility in how we do that. In line with what we said previously, we currently intend to buy back approximately $300 million of our common stock in fiscal 25, with another approximately $75 million of repurchases expected in Q3.

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

Speaker Change: I did it teach in on this subject on our Q4 of fiscal 'twenty two earnings call that you may want to refer to if you're new to PTC you can find that presentation on the investors section of our website.

Speaker Change: Over the medium term we expect.

Speaker Change: Our free cash flow to grow faster than our IRR with our non-GAAP operating expenses expected to grow at roughly half the rate of IRR.

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

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.

Speaker Change: Basic tenant of our subscription business model and budgeting process is that there is natural operating leverage that we benefit from as our IRR gross.

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

Speaker Change: Turning to slide 10, here's an illustrative constant currency a model.

Speaker Change: To help you with your models, we are providing revenue and EPS guidance.

Speaker Change: It shows our guidance for Q3 and Q4 in context.

Kristian Talvitie: With that, I'll take you through our guidance on slide nine. All of the ARR amounts on this slide are based on our fiscal 25 plan FX rates as of September 30, 2024. We've updated our guidance ranges for ARR, Free Cash Flow, Revenue, and EPS to reflect our first half results and the potential for elevated macro uncertainty in the second half of our fiscal year. As Neil said, uncertainty in the macro environment could result in lengthened sales cycles and downsized deals. and we've decided to take a more conservative stance on how ARR may evolve in the second half of fiscal 25.

Speaker Change: However, I'd like to reiterate my favorite reminder.

Speaker Change: You can see our sequential net new IRR over the past 10 quarters. The two columns on the right illustrates that our guidance range for Q3 is for $30 million to $50 million of sequential net IRR growth and our guidance range for Q4 is for 55% to $85 million of sequential net.

Speaker Change: The 606 makes revenue and EPS difficult to predict for PTC since we sell 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.

Speaker Change: Our growth.

Speaker Change: The year remains backend loaded which is supported by the size and shape of our pipeline.

Speaker Change: I did it teach in on this subject on our Q4 of fiscal 'twenty two earnings call that you may want to refer to if you're new to PTC you can find that presentation on the investors section of our website.

Speaker Change: Which is also influenced by the <unk>.

Speaker Change: <unk> of the expiring base.

Speaker Change: In contrast to prior years are expiring base was essentially flat in the first half of the year and is up almost 20% in the second half of the year.

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

Kristian Talvitie: I'll get into more detail on our constant currency ARR guide on the next two slides. On free cash flow, we've raised the low end of our guidance for the year by $5 million to $840 million. As a reminder, our fiscal 25 free cash flow guidance of $840 million to $850 million absorbs approximately $19 million of cash outflows for severance and consulting fees related to our go-to-market realignment. For Q3, we're guiding for free cash flow of $230 million to $235 million, which absorbs approximately $4 million of cash outflows related to our go-to-market realignment. At this point, we have good visibility to the potential range of free cash flow for Fiscal 25 for a few reasons.

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

And even the second half is skewed more heavily to Q4.

Speaker Change: Again, the shape of the pipeline is not determined by the expiring base, but it is influenced by it.

Speaker Change: Turning to slide 10, here's an illustrative constant currency a model that.

Speaker Change: It shows our guidance for Q3 and Q4 in context.

Speaker Change: As Neil said, we've not seen a significant change in customer demand. However, we are seeing a few early signs of customer caution given the macro uncertainty that our customers have experienced in recent weeks.

Speaker Change: You can see our sequential net new IRR over the past 10 quarters. The two columns on the right illustrates that our guidance range for Q3 is for $30 million to $50 million of sequential net IRR growth and our guidance range for Q4 is for 55% to $85 million of sequential.

Speaker Change: With just two quarters remaining in our fiscal year, we've decided to take a more conservative stance on our full year guidance.

Speaker Change: I'll point out that for Q3 and Q4 the high ends of our sequential net new <unk> guidance ranges are around or below the sequential net new <unk> growth we've delivered in prior years.

Speaker Change: <unk> growth.

Speaker Change: The year remains back end loaded which is supported by the size and shape of our pipeline.

Speaker Change: Which is also influenced by that.

Kristian Talvitie: First and foremost, we've already generated approximately 60% of our full year free cash flow in the first half. Also remember that Q4 is seasonally our lowest cash generation.

Speaker Change: <unk> of the expiring base.

Speaker Change: The low end of our guidance ranges allow for the potential that the macro conditions worsen significantly.

Speaker Change: In contrast to prior years are expiring base was essentially flat in the first half of the year and is up almost 20% in the second half of the year.

Speaker Change: Moving to slide 11, 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.

Kristian Talvitie: of Canada. ©2015 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Management In fiscal 25, we expect largely similar invoicing seasonality compared to previous years. And by the end of Q3, we'll have already billed most of what we expect to collect for the remainder of this year. If we see a significant impact to customer demand later this year, you can expect us to respond with disciplined cost control. In addition, costs associated with customer demand, for example, commissions and royalties, would naturally come in lower, thereby mitigating the impact to our fiscal 25 free cash.

Speaker Change: And even the second half is skewed more heavily to Q4.

Speaker Change: Again, the shape of the pipeline is not determined by the expiring base, but it is influenced by it.

Speaker Change: $157 million to $207 million of net <unk> growth this year to hit our fiscal accounts.

Speaker Change: As Neil said, we've not seen a significant change in customer demand. However, we are seeing a few early signs of customer caution given the macro uncertainty that our customers have experienced in recent weeks.

Speaker Change: 25 constant currency guidance range.

Speaker Change: Note that fiscal 'twenty four benefited by approximately $10 million due to deferred.

Speaker Change: We expect churn to remain low in fiscal 'twenty five since transitioning to a subscription business model. Our business has proved to be resilient because of our customers.

Speaker Change: With just two quarters remaining in our fiscal year, we've decided to take a more conservative stance on our full year guidance.

Speaker Change: I'll point out that for Q3 and Q4 the high ends of our sequential net new <unk> guidance ranges are around or below the sequential net new <unk> growth we've delivered in prior years.

Kristian Talvitie: It's worth pointing out that our free cash flow guidance is not on a constant currency basis, so it's important to be mindful of FX volatility. 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. So we have somewhat of a natural hedge. That said, significant FX moves can still have an impact. We'll see how FX rates move as we progress through the year, but at this point, we're comfortable with our free cash flow guidance for Q3 and fiscal 25 because of the levers that we have and that continue to be fully within our control.

Speaker Change: Need to maintain the software in order to continue designing and producing their products.

Speaker Change: While we sell to engineering manufacturing and services departments. Most of our business is focused on engineering, we're spending by our customers tends to be more protected.

Speaker Change: The low end of our guidance ranges allow for the potential that the macro conditions worsen significantly.

Neil Barbara: With that I'd like to turn the call back over to Neil.

Speaker Change: Moving to slide 11, 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.

Neil Barbara: Thanks Christian before we move into Q&A, let me step back for a moment to frame, where we are our strategy remains absolutely consistent since I started deepen customer value through P. A L. M S alone at and SaaS.

Speaker Change: <unk> hundred $57 million to $207 million of net IRR growth this year to hit our fiscal account fiscal 'twenty five constant currency guidance range.

Neil Barbara: Verticalizing, our go to market execution and lead innovation through applied generative, AI and making our products work well together.

Speaker Change: Note that fiscal 'twenty four benefited by approximately $10 million due to deferred.

Neil Barbara: We executed solidly in Q2, strengthening our pipeline advancing our go to market transformation and enhancing our product portfolio at the same time, we're being clear eyed about the external environment.

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 length. Over the medium term, we expect Our free cash flow to grow faster than our ARR, with our non-gap 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 is natural operating leverage that we benefit from as our ARR grows.

Speaker Change: We expect churn to remain low in fiscal 'twenty five since transitioning to a subscription business model. Our business has proved to be resilient because of our customers.

Neil Barbara: Global trade and macro volatility have intensified recently and while customer urgency for digital transformation remains strong decision, making can become more cautious during these periods.

Speaker Change: Need to maintain the software in order to continue designing and producing their products.

Speaker Change: Well, we sell to engineering manufacturing and services departments. Most of our business is focused on engineering, we're spending by our customers tends to be more protected.

Neil Barbara: That's why we proactively adjusted our range to account for potential timing shifts and deal closure and sizing.

Neil: With that I'd like to turn the call back over to Neil.

Neil Barbara: Fundamental structural customer demand for our products remains strong.

Neil: Thanks Christian before we move into Q&A, let me step back for a moment to frame where we are.

Neil Barbara: Our free cash flow strength margin discipline and financial resilience remains firmly intact.

Kristian Talvitie: To help you with your models, we're providing revenue and EPS guidance.

Speaker Change: Our strategy remains absolutely consistent since I've started deepen customer value through <unk> Epsilon at and SaaS.

Neil Barbara: We feel great about our long term opportunity and confident in the near term discipline, we're applying with that let's take your questions.

Kristian Talvitie: 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 of Fiscal 22 earnings call that you may want to refer to if you're new to PTC. You can find that presentation on the Investor section of our website.

At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. Please limit yourself to one question.

Speaker Change: Verticalizing, our go to market execution and lead innovation through applied generative, AI and making our products work well together.

Speaker Change: We executed solidly in Q2, strengthening our pipeline advancing our go to market transformation and enhancing our product portfolio at the same time, we're being clear eyed about the external environment global trade and macro volatility have intensified recently and while customer urgency for digital transformation.

Neil Barbara: If you have additional questions. Please return to the queue, we will call for just a moment to compile the Q&A roster.

Neil Barbara: Our first question comes from the line of Daniel Jester with BMO capital markets. Please go ahead.

Daniel Jester: Good afternoon, everyone. Thank you for taking my question I guess this is for Christian maybe.

Speaker Change: <unk> strong decision, making can become more cautious during these periods. That's why we proactively adjusted our range to account for potential timing shifts and deal closure and sizing.

Kristian Talvitie: The summary is we believe ARR and free cash flow, rather than revenue and operating income, to be the best metrics to assess the performance of our business. Turning to slide 10, here's an illustrative constant currency ARR model that shows our guidance for Q3 and Q4 in context. You can see our sequential net new ARR over the past 10 quarters. The two columns on the right illustrate that our guidance range for Q3 is for 30 to 50 million of sequential net ARR growth, and our guidance range for Q4 is for 55 to 85 million of sequential net ARR growth.

Daniel Jester: Maybe could you dive in a little bit deeper about how you constructed the downside scenario for the 7% IRR any additional color about what that assumes from a macro perspective or deal size delay et cetera would be very helpful. Thank you.

Speaker Change: Fundamental structural customer demand for our products remains strong.

Speaker Change: Our free cash flow strength margin discipline and financial resilience remain firmly intact.

Nick: Yes. Thanks for the question this is Nick.

Speaker Change: Let me start and then Christian good that on how we did this so as we saw let me start with the framework of the 10 Tonight.

Speaker Change: We feel great about our long term opportunity and confident in the near term discipline, we're applying with that let's take your questions.

Speaker Change: Again to reiterate we feel and see a strong pipeline as we have been entering into the second half we continue to see that.

Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. Please limit yourself to one question if.

As of the early April time frame when we all got hit with a lot of news and impact that's really centered around our customer base around trade policy and macro conditions. We've been in conversations with customers that are indicating things like I was on with the exact team of a large medical device.

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

Kristian Talvitie: The year remains back-end loaded, which is supported by the size and shape of our pipeline, which is also influenced by the shape of the expiring. In contrast to prior years, our expiring base was essentially flat in the first half of the year and is up almost 20% in the second half. And even the second half is skewed more heavily to Q4. Again, the shape of the pipeline is not determined by the expiring base, but it is influenced by it. As Neil said, we've not seen a significant change in customer demand.

Speaker Change: We will pause for just a moment to compile the Q&A roster.

Speaker Change: Our first question comes from the line of Daniel Jester with BMO capital markets. Please go ahead.

Daniel Jester: Good afternoon, everyone. Thank you for taking my question I guess this is for Christian maybe.

Speaker Change: Company that says we're moving down the path with all of you on the AUM expansion that we need to do but when we get to sign the contract in Q4, we might if this continued environment persists need to make it a smaller chunk first and do a bigger chunk later when theres more clarity.

Daniel Jester: Maybe could you dive in a little bit deeper about how you constructed the downside scenario for the 7% <unk> any additional color about what that assumes from a macro perspective for deal size delay et cetera would be very helpful. Thank you.

Speaker Change: So we're in these conversations again, it's not broad based but it's enough for us to say, we look at the pipeline. We've assessed the end markets. The geographies and said you know what the 10% of stretch, let's bring that top end down to nine based on what we're seeing.

Daniel Jester: Yes. Thanks for the question. This is Neil let me start and then Christian good at how we did this so as we saw let me start with the framework of the 10 to nine.

Kristian Talvitie: However, we are seeing a few early signs of customer caution, given the macro uncertainty that our customers have experienced in recent With just two quarters remaining in our fiscal year, we've decided to take a more conservative stance on our full-year guidance. I'll point out that for Q3 and Q4, the high ends of our sequential net new ARR guidance ranges are around or below the sequential net new ARR growth we've delivered in prior years. The low end of our guidance ranges allow for the potential that the macro conditions worsen significantly.

Daniel Jester: Again to reiterate we feel and see a strong pipeline as we have been entering into the second half we continue to see that.

Speaker Change: Now on the low end side, we took it to 7% we did two things with the assessment of 7% in our understanding of how to portray that to all of you number. One is we did a bottoms up view and you'll hear hopefully from Rob in Q&A, as well, where the pipeline quality and the velocity of it is incremental.

Daniel Jester: As of the early April time frame when we all got hit with a lot of news and impact that's really centered around our customer base around trade policy and macro conditions. We've been in conversations with customers that are indicating things like I was on with the exact team of a large medical device.

Speaker Change: Getting better we've been doing that for multiple years, but this quarter. We really went into what does that pipeline look like when will the conversions actually hit net new <unk> in Q3 Q4, what are the end markets what's related to our renewal, what's not and when we did that assessment and looked at in particular, the industrial Vanda.

Daniel Jester: Company that says we're moving down the path with all of you on the Om expansion that we need to do but when we get to sign the contract in Q4, we might if this continued environment persists need to make it a smaller chunk first and do a bigger chunk later when theres more clarity.

Kristian Talvitie: Moving to slide 11, here's a similar illustrative model for fiscal 25. and Andrew Veltz. Note that fiscal 24 benefited by approximately $10 million due to deferred ARR. We expect churn to remain low in fiscal 25. Since transitioning to a subscription business model, our business has proved to be resilient because our customers need to maintain the software in order to continue designing and producing their product. While we sell to engineering, manufacturing, and services departments, most of our business is focused on engineering, where spending by our customers tends to be more protected.

Speaker Change: Factoring segment in the United States as one example, or the automotive or auto parts segments, and we thought through a really worsening conditions macro where nothing gets resolved theres no trade deals that get announced in the next 30 to 60 days other factors increase greater uncertainty we factored that.

Daniel Jester: So we're in these conversations again, it's not broad based but it's enough for us to say, we look at the pipeline. We've assessed the end markets. The geographies and said you know what the 10% of stretch, let's bring that top end down to nine based on what we're seeing.

Speaker Change: Into thinking what could be a downside case that people moved out projects or made projects even smaller than what is our current understanding of the environment. So we did a bottoms up than we did a top down view of what was the worst.

Daniel Jester: Now on the low end side, we took it to 7% we did two things with the assessment of the 7% in our understanding of how to portray that as all of you number. One is we did a bottoms up view and you'll hear hopefully from Rob in Q&A, as well, where the pipeline quality and the velocity of it is incremental.

Speaker Change: Environment and what happened at PTC when other crises.

Speaker Change: It came about in 2009 during the pandemic and we looked at that and.

Daniel Jester: Getting better we've been doing that for multiple years, but this quarter. We really went into what does that pipeline look like when will the conversions actually hit net new <unk> in Q3 Q4, what are the end markets what's related to our renewal, what's not and when we did that assessment and looked at in particular, the industrial Vantiv.

Speaker Change: And we said you know what if all of those things hit in the same similar manner that 7% is a extremely good floor for what we see currently to put as the low end and to be crystal clear to answer. Your question. When we think about the 7% it would need to have significant deterioration or things that.

Neil Barua: With that, I'd like to turn the call back over to Neil. Thanks, Kristian. Before we move into Q&A, let me step back for a moment to frame where we are. Our strategy remains absolutely consistent since I started. Deepen customer value through PLM, ALM, SLM, ADD, and SAS. Verticalize our go-to-market execution and lead innovation through applied generative AI and making our products work well together. We executed solidly in Q2, strengthening our pipeline, advancing our go-to-market transformation, and enhancing our product portfolio. At the same time, we're being clear-eyed about the external environment. Global trade and macro-volatility have intensified.

Daniel Jester: Factoring segment in the United States as one example, or the automotive or auto parts segments, and we thought through a really worsening conditions macro where nothing gets resolved there's no trade deals that get announced in the next 30 to 60 days other factors increase greater uncertainty we factored that.

Speaker Change: We're seeing to actually be put into practice from our customer perspective, and how they buy from us we're not seeing yet, but we want to proactively tell you things that we're working on and make it visible on the things that we can't control I E. The macro conditions that might get worse or better quite frankly over the next five months as we close out the year.

Into thinking what could be a downside case that people moved out projects or made projects even smaller than what is our current understanding of the environment. So we did a bottoms up than we did a tops down view of what was the worst.

Speaker Change: Yeah.

Your next question comes from the line of Edinburg.

Phil: Phil Please go ahead.

Speaker Change: Oh, thanks, so much for taking the question I appreciate it.

Daniel Jester: Environment and what happened at PTC when other crises.

Speaker Change: Maybe for Rob on the go to market I'd love to talk a little bit more about just all the stuff that has been taken the confidence that you have internal indicators, you're looking at that he doesn't go to market changes R&D working and of course, China as well. Thanks, so much.

Neil Barua: And while customer urgency for digital transformation remains strong, decision-making can become more cautious during these periods. That's why we proactively adjusted our ARR range to account for potential timing shifts in deal closure and sizing. Fundamental, structural customer demand for our products remains strong. Our free cash flow strength, margin discipline, and financial resilience remain firmly intact. We feel great about our long-term opportunity, and confident in the near-term discipline we're applying.

Daniel Jester: Came about in 2009 during the pandemic and we looked at that and.

Daniel Jester: And we said you know what if all of those things hit in the same similar manner.

Daniel Jester: 7% is a extremely good floor for what we see currently to put us at the low end and to be Crystal clear to answer. Your question. When we think about the 7% it would need to have significant deterioration or things that we're seeing to actually be put into practice from a customer perspective, and how they buy from us.

Speaker Change: Thanks for that.

Speaker Change: For the question.

Speaker Change: Top line is I'm really pleased with all the work.

Speaker Change: That's been done and that we put into play here just over the last 90 days for sure. When you think about what we started.

Speaker Change: We pivoted the full thing standing field organization.

Chair, Conference: With that, let's take your questions. At this time, I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. Please limit yourself to one question only.

Daniel Jester: We're not seeing it yet, but we want to proactively tell you things that we're working on and make it visible on the things that we can't control I E. The macro conditions that might get worse or better quite frankly over the next five months as we close out the year.

Speaker Change: Our vertical a vertical approach.

Speaker Change: That required a lot of movement and I'm proud to say the team really came through well we did it with low churn.

Speaker Change: In return we retained all of our top talent in a highly tenured sales organization.

Chair, Conference: If you have additional questions, please return to the We will pause for just a moment to compile the Q&A roster.

Speaker Change: Your next question comes from the line of Edinburg relates to Phil. Please go ahead.

Speaker Change: Very low drama and we've delivered on the quarter. So I think overall, we feel really good about the foundation. That's been that was planned for frankly, and then delivered and executed on in the last quarter and it really sets us up well.

Daniel Jester: Our first question comes from the line of Daniel Jester with BMO Capital Markets. Please go ahead. Good afternoon, everyone. Thank you for taking my question.

Speaker Change: Oh, thanks, so much for taking the question I appreciate it.

Speaker Change: Rob on the go to market, but could you talk a little bit more about just all the stuff and it can take in the confidence that you have internal indicators, you're looking at that he doesn't go to market changes R&D working and of course he'll chime in as well. Thanks so much.

Kristian Talvitie: I guess this is for Kristian. Maybe could you dive in a little bit deeper about how you constructed the downside scenario for the 7% ARR? Any additional color about what that assumes from a macro perspective or deal size, delay, etc.

Speaker Change: For our future growth trajectory it allows for more frequent conversations with our customers.

Speaker Change: Outcomes focused discussions.

Speaker Change: And hopefully a greater trajectory what should receive a little bit here early on the pipe. So.

Speaker Change: Thanks for the thanks for the question.

Speaker Change: Top line is I'm really pleased.

Speaker Change: We're all very pleased.

Speaker Change: With all the work that's been done that we've put into play here just over the last 90 days for sure.

Speaker Change: Your next question comes from the line of second Korea with Barclays Capital. Please go ahead.

Neil Barua: would be very helpful. Thank you. Yeah, thanks for the question.

Speaker Change: When you think about what we started.

Neil Barua: This is Neil. Let me start and then Kristian can add on how we did this. So, as we saw, let me start with the framework of the 10 to 9. Again, to reiterate, we feel and see a strong pipeline, as we've been entering into the second half, we continue to see that. As of the early April timeframe, when we all got hit with a lot of news and impact that's really centered around our customer base around trade policy and macro conditions, we've been in conversations with customers that are indicating things like I was on with the exec team of a large medical device company that says, we're moving down the path with all of you on the PLM expansion that we need to do.

Second Korea: Okay, Great Hey, guys. Thanks for taking my question here.

Speaker Change: We pivoted the full thing standing field organization.

Speaker Change: Christian maybe maybe for you first off good to see this year's free cash flow midpoint go up.

Speaker Change: <unk>.

Speaker Change: Our vertical a vertical approach.

Speaker Change: That required a lot of movement and I'm proud to say the team really came through well we did it with low churn customer churn, we retain all of our top talent in a highly tenured sales organization.

Speaker Change: Maybe maybe as we think about the billion in free cash flow next year, just appreciating that it's a very different macro what are sort of the puts and takes that you want us to think about what that target.

Speaker Change: As we just think about kind of the more prudent outlook for this year does that makes sense.

Speaker Change: Very low drama.

Speaker Change: And we've delivered on the quarter. So I think overall, we feel really good about the foundation. That's been that was planned for frankly, and then delivered and executed on in the last quarter and it really sets us up well.

Speaker Change: Yes, I think it's I think it's a fair question I think it's definitely premature to really be answering it.

Speaker Change: We need to first of all finish out this year and see where we actually end up we need to.

Speaker Change: For our future growth trajectory allows for just conversations with our customers more outcomes focused discussions.

Neil Barua: But when we get to sign the contract in Q4, we might, if this continued environment persists, need to make it a smaller chunk first and do a bigger chunk later when there's more clarity. So we're in these conversations. Again, it's not broad-based, but it's enough for us to say, we look at the pipeline, we've assessed the end markets, the geographies, and said, you know what? The 10% of stretch, let's bring that top end down to nine based on what we're seeing. Now on the low end side, we took it to 7%. We did two things with the assessment of 7% in our understanding of how to portray that to all of you.

Speaker Change: Get through the annual planning process.

Speaker Change: And hopefully a greater trajectory what should receive a little bit here early on the pipe. So overall very pleased.

Speaker Change: As well.

Speaker Change: Which you know.

Speaker Change: That has not happened yet.

Speaker Change: We need to look at some other factors like what's going to happen with.

Speaker Change: Your next question comes from the line of second Korea with Barclays Capital. Please go ahead.

Speaker Change: Interest rates whats going to happen with tax policy, what's going to happen with foreign exchange rates.

Speaker Change: Okay, Great Hey, guys. Thanks for taking my question here.

Speaker Change: Christian maybe maybe for you first off good to see this year's free cash flow midpoint go up.

Speaker Change: So I think those are some of the variables that were.

We're looking at and contemplating.

Speaker Change: Maybe maybe as we think about <unk> billion in free cash flow next year, just appreciating that it's a very different macro.

Speaker Change: Yes.

Speaker Change: Thanks for the question too I would like to add.

Speaker Change: The go to market transformation again, one quarter and as you heard Bob.

Neil Barua: Number one is we did a bottoms up. And you'll hear hopefully from Rob in Q&A as well, where the pipeline quality and the velocity of it is incrementally getting better. We've been doing that for multiple years, but this quarter, we really went into what does that pipeline look like? When will the conversions actually hit net new ARR in Q3, Q4? What are the end markets? What's related to a renewal? What's not? And when we did that assessment and looked at, in particular, the industrial manufacturing segment in the United States, as one example, or the automotive or auto parts segments, and we thought through a really worsening condition of macro where nothing gets resolved.

Speaker Change: That's sort of the puts and takes that you want us to think about what that target.

Speaker Change: He is feeling the momentum that needs to continue as we build and see that actually relate to how the pipeline is in the conversion rates and as we build that up.

Speaker Change: As we just think about kind of the more prudent outlook for this year does that makes sense.

Speaker Change: Yeah, I think it's I think it's a fair question I think it's definitely premature to really be.

Speaker Change: Organically here at the business. We also have to take a look at what happens as macro environment right and changes that are happening relatively rapidly. Some good maybe some bad so we're putting that all into the mixer and making sure as we come out the framework I think still holds that we've been talking about.

Speaker Change: Answering it.

Speaker Change: We need to first of all finish out this year and see where we actually end up we need to.

Speaker Change: Get through the annual planning process.

Speaker Change: As well.

Speaker Change: But all of those details need to be squared away to make sure. We put our best foot forward as we talked to you guys about next year I will say from a confidence perspective, hopefully you've seen at socket that delivering this type of free cash flow in an environment, where our current guidance range is now 79% is a really strong indication of the strong execution.

Speaker Change: Which you know has.

Speaker Change: Not happened yet.

Speaker Change: We need to look at some other factors like what's going to happen with <unk>.

Speaker Change: Interest rates whats going to happen with tax policy, what's going to happen with foreign exchange rates.

Neil Barua: There's no trade deals that get announced in the next 30 to 60 days. Other factors increase greater uncertainty. We factored that into thinking, what could be a downside case that people moved out projects or made projects even smaller than what is our current understanding of the environment? So we did a bottoms up. Then we did a top down view of what was the worst environment and what happened at PTC when other crises came about in 2009 during the pandemic. And we looked at that. And we said, you know what, if all those things hit in the same similar manner, that 7% is an extremely good floor for what we see currently to put as the low end.

Speaker Change: So I think those are some of the variables that were there.

Speaker Change: Ultra we built on this company.

Speaker Change: That we're looking at and contemplating.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of CBD, Brian with Mizuho. Please go ahead.

Speaker Change: Thanks for the question too I was like that you know the.

Speaker Change: The go to market transformation again, one quarter and as you heard Bob he's he's feeling the momentum that needs to continue as we build and see that actually relate to how the pipeline is in the conversion rates and as we build that up.

Brian: Thank you and Neil Thanks for the clear explanation about what Youre seeing with customer I wanted to ask you in this kind of environment. How is how youre discussing going on with your customer in terms of AI adoption you guys introduced some of this AI products, both in a wind chill and.

Speaker Change: Organically here at the business. We also have to take a look at what happens as macro environment right and changes that are happening relatively rapidly some good and maybe some bad so we're putting that all into the mixer and making sure as we come out the framework I think still holds that we've been talking about.

Brian: In servicemaster and other area as well so how Howard.

Brian: How is the discussion going dumps of them adopting AI in this kind of environment.

Neil Barua: And to be crystal clear, to answer your question, when we think about the 7%, it would need to have significant deterioration of things that we're seeing to actually be put into practice from our customer perspective on how they buy from us. We're not seeing it, but we want to proactively tell you things. What that we're working on and make it visible on the things that we can't control, i.e. the macro conditions that might get worse or better, quite frankly, over the next five months as we close up.

Speaker Change: But all those details need to be squared away to make sure. We put our best foot forward as we talked to you guys about next year I will say from a confidence perspective, hopefully you've seen at socket that delivering this type of free cash flow in an environment, where our current guidance range is now 79% is a really strong indication of the strong execution color.

Brian: Yes, it's a great question and it's a.

Brian: If you were watching us in Hanover MSA when we when we announce windchill AI showed the world could be Maria and obviously as we talked about service Max AI alongside the odd shape AI advisor, we've got a full stable of launches and proof points that we're putting out into the marketplace.

Speaker Change: We built in this company.

Speaker Change: Okay.

So a lot of great innovation and the team's doing a lot of great customer reception. It was standing room only in terms of the things that our customers were seeing prospects, we're seeing around our AI capabilities.

Speaker Change: Your next question comes from your line of CBD, Brian with Mizuho. Please go ahead.

Adam Borg: Your next question comes from the line of Adam Borg with Stifel, please go ahead. Awesome. Thanks so much for taking the question. I appreciate it.

Speaker Change: Thank you and Neil Thanks for the clear explanation about what youre seeing with customer.

Brian: Thank the major thing that we're learning through this process is that as we mentioned a few quarters ago. This product data foundation that our core systems allow our customers to achieve with P. L. M Cat a L. M. S. L M. Having that is absolutely critical for getting the best use of generative AI.

Robert Dahdah: Maybe for Rob on the go-to-market, I'd love to talk a little bit more about just some of the steps that have been taken, the confidence that you have, the internal indicators you're looking at to see that the go-to-market changes are indeed working. And of course, you'll chime in as well. Thanks. Thanks for the questions.

Speaker Change: Wanted to ask you in this kind of environment, how is how youre discussing going on with your customer in terms of AI adoption you guys introduced some of the AI products, both in wind Chill and service Max and other areas. So how Howard.

Robert Dahdah: top line is I'm really pleased. all the work that's that's been done that we put into play here just over the last 90 days for sure you know when you think about what we started you know we took we pivoted the full standing field organization to a vertical, a vertical. You know, that required a lot of movement, and I'm proud to say the team really came through well. We did it with low churn, customer churn. We retained all of our top talent and a highly tenured sales organization, very low drama, and we delivered on the quarter.

Brian: So those two factors are great generative AI product innovation that we're now showing to our customers getting feedback from our customers relating back to how do you really supercharge that well put together a great P. O M system across your enterprise or <unk> system across your enterprise. The two is.

Speaker Change: How is the discussion going in terms of them adopting AI in this kind of environment.

Speaker Change: Yes.

Speaker Change: Great question and it's.

Speaker Change: If you were watching us in Hanover messy, when we when we announced wind chill AI showed the world could be Maria and obviously as we talked about service Max AI alongside the odd shape AI advisor, we've got a full stable of launches and proof points that we're putting out into the marketplace.

Brian: The differentiator for PTC and its highly valuable and we believe it's going to be an ultimate growth driver that results in a our growth over the midterm and long term I think in the near term to summarize customers are still interested they are far more engaged this quarter than they were last quarter given our launches.

Speaker Change: So a lot of great innovation of the team is doing a lot of great customer reception. It was standing room only in terms of the things that our customers were seeing prospects, we're seeing around our AI capabilities.

Robert Dahdah: So I think, you know, overall, we feel really good about the foundation that's been, that was planned for, frankly, and then delivered and executed on in the last quarter. It really sets us up well for a future growth trajectory that allows for just more intimate conversations with our customers, more outcomes focused discussions, and, you know, hopefully a greater trajectory, which we're seeing a little bit here early on the pipe. So the overall very.

Brian: But our view is it will take some time for the biggest bite sizes of generated by AI to take hold it will happen, but it will happen more methodically over the course of the next 12 to 24 months.

Speaker Change: I think the major thing that we're learning through this process is that as we mentioned a few quarters ago. This product data foundation that our core systems allow our customers to achieve with P. L. M Cat a L. M. S. L M. Having that is absolutely critical for getting the best use of general.

Brian: Yeah.

Speaker Change: Your next question comes from the line of Ken Wong with Oppenheimer. Please go ahead.

Speaker Change: Great. Thanks for taking my question just one for you Christian somewhat building on Dan's question earlier, so as you think about that 7% range and that requiring significant erosion in macro any way to frame some of the <unk>.

Speaker Change: So those two factors are great generative AI product innovation that we're now showing to our customers getting feedback from our customers relating back to how do you really supercharge that well put together a great P. O M system across your enterprise or <unk> system across your enterprise the two.

Saket Kalia: Your next question comes from the line of Saket Kalia with Barclays Capital, please go ahead. Great. Hey guys, thanks for taking my call. Kristian, maybe for you, first off, good to see this year's free cash flow midpoint.

Speaker Change: Moving pieces financially in terms of churn and I think in the past during Covid you guys had talked about net new <unk> down a certain amount like how should we think about what are some of the components that would go into getting to that 7%.

Speaker Change: Is the differentiator for PTC and its highly valuable and we believe it's going to be an ultimate growth driver that results in a our growth over the midterm and long term I think in the near term to summarize customers are still interested they are far more engaged this quarter than they were last quarter given our launches.

Kristian Talvitie: Maybe as we think about the billion in free cash flow next year, just appreciating that it's a very different macro, what are some of the puts and takes that you want us to think about with that target? As we just think about kind of the more prudent ARR out Does that make sense? Yeah, I think it's a fair question. I think it's definitely premature to really be, you know, answering it. We need to, first of all, finish out this year and see where we actually end up. We need to get through the annual planning process, as well, which has not happened yet.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thanks, It's a good question.

Speaker Change: I would say that first of all the churn.

Speaker Change: But our view is it will take some time for the biggest bite sizes of generated by AI to take hold it will happen, but it will happen more methodically over the course of the next 12 months to 24 months.

Has been low now for a couple of years, we expect it to continue to remain low.

Speaker Change: Even in.

Speaker Change: Some of the prior.

Speaker Change:

Speaker Change: Macro situations.

Speaker Change: The company's been in we haven't actually seen significant increases.

Speaker Change: Yeah.

Ken Wong: Your next question comes from the line of Ken Wong with Oppenheimer. Please go ahead.

Speaker Change: Increases in <unk>.

Speaker Change: And the churn and churn rates. So it really is more down to new business and how that is coming in again smaller bite sized chunks et cetera.

Kristian Talvitie: We need to look at some other factors like what's going to happen with Interest Rates, what's going to happen with tax policy, what's going to happen with foreign exchange rates. So I think those are some of the variables that we're looking at and contemplating.

Ken Wong: Great. Thanks for taking my question. This one for you Christian.

Speaker Change: Building on Dan's question earlier, as you think about that 7% range and that requiring significant erosion in macro any way to frame some of the.

Speaker Change: Et cetera.

Speaker Change: So.

Speaker Change: Moving pieces financially in terms of churn and I think in the past during Covid you guys had talked about net new anr down a certain amount like how should we think about what are some of the components that would go into getting to that 7%.

Speaker Change: Just to add to this.

Speaker Change: We chose we chose to give this guidance range are different than some others out there that are still looking at the environment, we want to be proactive about it and the way you look at if you think about the Q4 number to your question. The low end is $55 million of that new way or are the high end 85 billion right at 9%.

Neil Barua: Yeah, you know, Saket, thanks for the question, too. I'd like to add, you know, the go-to-market transformation, again, one quarter in, as you heard, Rob, he's feeling the momentum that needs to continue as we build and see that actually relate to how the pipeline is and the conversion rates. And as we build that up organically here at the business, we also have to take a look at what happens in this macro environment, right? And changes that are happening relatively rapidly, some good, maybe some bad. So we're putting that all into the mixer and making sure as we come out, the framework, I think, still holds that we've been talking about.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thanks, It's a good question.

Speaker Change: I would say that first of all the churn.

Speaker Change: Last Q4, we did 84 in 2023, we did 76 and so when we look at that $20 million or so downside protection.

Speaker Change: Has been low now for a couple of years, we expect it to continue to remain low.

Speaker Change: Even in.

Speaker Change: Some of the prior.

Speaker Change: Did that bottoms up view, we know every customer and made assessments around what could push one could get smaller bite size and then to your question around other crises, we looked at what happened in those other really dramatic crises, which quite frankly I don't believe personally that that will happen in this go around but if it does what we saw was.

Speaker Change:

Speaker Change: Macro situations that.

Speaker Change: The company's been in we haven't actually seen significant.

Neil Barua: But all those details need to be squared away to make sure we put, you know, our best foot forward as we talk to you guys about next year. I will say from a confidence perspective, hopefully you've seen it, Saket, that delivering this type of free cash flow in an environment where our current guidance range is 7% to 9% is a really strong indication of the strong execution culture we've built in this company.

Speaker Change: Creases in.

Speaker Change: And the chairman and the churn rates. So it really is more down to new business and how that is coming in again smaller bite sized chunks et cetera.

Speaker Change: A 20% to 30% reduction in conversion rates when things really fell apart in the industry. So top down bottoms up we came to that 20 million risks is a good risk profile.

Speaker Change: Et cetera.

Speaker Change: So yeah.

Speaker Change: And just to add to this.

Speaker Change: We chose we chose to give this guidance range are different than some others out there that are still looking at the environment, we want to be proactive about it and the way you look at if you think about the Q4 number to your question. The low end is $55 million of that new way or are the high ends 85 billion right at 9%.

Speaker Change: If things get materially worse in Q4, Q3, Q4, and you would see it more broadly across the business and just throughout the channel.

Sitikantha Panigrahi: If your next question comes from the line of Siti Panigrahi with Mizuhu, please go ahead. Thank you. And Neil, thanks for that clear explanation about what you're seeing with customer. I wanted to ask you in this kind of environment, how is your discussion going on with your customer in terms of AI adoption? You guys introduced some of those AI products, both in, you know, Windchill, and even ServiceMax and other areas as well. So how are they, you know, the discussion going in terms of them adopting AI in this kind of environment?

Speaker Change: And elsewhere on the direct basis.

Speaker Change: Biggest deals in that case.

Yeah.

Speaker Change: Your next question comes from the line of Jason <unk> with Keybanc capital markets. Please go ahead.

Speaker Change: Last Q4, we did 84 in 2023, we did 76 and so when we look at that $20 million or so downside protection.

Jason: Perfect. Thank you for taking my question.

Speaker Change: Just one question that is.

Speaker Change: So one of your competitors talked about seeing some positive in deal activity at the end of March, but then things kind of normalize in April it doesn't sound like the dynamic that you're kind of talking about today.

Speaker Change: Did that bottoms up view, we know every customer and made assessments around what could push one could get smaller bite size and then to your question around other crises, we looked at what happened in those other really dramatic crises, which quite frankly I don't believe personally that that will happen in this go around but if it does what we saw.

Neil Barua: Yeah, it's a great question. And it's, if you were watching us in Hannover Messe, when we when we announced Windchill AI, showed the world CodeBeamer AI, and obviously, as we talked about ServiceMax AI, alongside the Onshape AI Advisor, we've got a full stable of launches, and proof points that we're putting out to the marketplace. So a lot of great innovation that the team's doing a lot of great customer reception, it was standing room only in terms of the things that are customers we're seeing prospects we're seeing around our AI capabilities. I think the major thing that we're learning through this process is that, as we mentioned a few quarters ago, this product data foundation that our core systems allow our customers to achieve with PLM, CAD, ALM, SLM, having that is absolutely critical for getting the best use of generative AI.

Speaker Change: But is this something that you saw.

Speaker Change: Are you somehow.

Speaker Change: That demand activity might've changed Neil I know you talked about some of the Congo as you've been in but curious on this specifically thank you.

Speaker Change: A 20% to 30% reduction in conversion rates when things really fell apart in the industry. So top down bottoms up we came to that 20 million risks is a good risk profile.

Speaker Change: Yeah, I I couldnt make sense of what our competitor set on that front, but in terms of our business. Most importantly, we had a solid quarter in Q2 like this like look at the customer appendix slides some by the way a disruptive moves that we did competitive displacements that were made with real sizable accounts right. So strong.

Speaker Change: If things get materially worse in Q4, Q3, Q4, and you'd see it more broadly across the business and just throughout the channel.

Speaker Change: Yeah.

Speaker Change: Elsewhere on the direct basis.

Speaker Change: These deals and that.

Speaker Change: Yes.

Speaker Change: Demand environment I want to reiterate we've entered Q3 Q3, we continue to see an extremely strong a good strong high quality pipeline that we're continuing to build upon with Rob's hard work here. So we feel like the demand environment is solid but we're trading in this new guidance range is making sure.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Jason <unk> with Keybanc capital markets. Please go ahead.

Jason: Perfect. Thank you for taking my question.

Speaker Change: Just one question that is.

Speaker Change: So one of your competitors talked about seeing some bloggers and deal activity at the end of March, but then things kind of normalized in April it doesn't sound like the dynamic youre kind of talking about today.

Neil Barua: So those two factors, a great generative AI product innovation, that we're now showing to our customers getting feedback from our customers, relating back to how do you really supercharge that? Well, put together a great PLM system across your enterprise, or ALM system across your enterprise. The two is the differentiator for PTC. And it's highly valuable. And we believe it's going to be an ultimate growth driver that results in AR growth over the midterm and long term. I think in the near term, to summarize, customers are still interested, they're far more engaged this quarter than they were last quarter, given our launches.

Speaker Change: These initial conversations of uncertainty in end markets that are most impacted by the trade policy, we're just being prudent and making sure. We're ahead of it as they actually formulate themselves. If they do this is the range that we see.

Speaker Change: But is this something that you saw.

Speaker Change: Somehow some of that demand activity might've changed Neil I know you talked about some of the Congo as you've been in but curious on this specifically thank you.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of James Lee Shower with Griffin Securities. Please go ahead.

Yeah, I I couldnt make sense of what our competitor set on that front, but in terms of our business. Most importantly, we had a solid quarter in Q2 like this like look at the customer appendix slides some by the way.

Speaker Change: Thank you good evening.

Speaker Change: Neil Christian.

Speaker Change: Rob.

Perhaps almost irrespective of the tariffs morass, maybe we can talk about the underline.

Speaker Change: <unk> moves that we did competitive displacements that were made with real sizable accounts right. So strong demand environment I want to reiterate we've entered Q3 Q3, we continue to see an extremely strong a good strong high quality pipeline that we're continuing to build upon with Rob's hard work here.

Neil Barua: But our view is, it will take some time for the biggest bite sizes of generative AI to take hold, it will happen, but it will happen more methodically over the course of the next 12 to 24 months.

Speaker Change: Both.

Speaker Change: Dynamics of the business organically.

Speaker Change: For instance, when we think about your two largest killers, CAD and <unk>. It would seem that the active base growth. There for each is mid single digits and that seems likely to continue of churn remains low so over and above that mid single digit.

Ken Wong: Your next question comes from the line of Ken Wong with Oppenheimer, please go ahead. Great, thanks for taking my question. This one's for you, Kristian, somewhat building on Dan's question earlier, as you think about that 7% range and that requiring significant erosion in macro, any way to frame some of the Moving pieces financially in terms of churn and I think in the past, you know, during COVID, you guys had talked about, you know, net new ARR down a certain amount.

Speaker Change: So we feel like the demand environment is solid but we're trading in this new guidance range is making sure. These initial conversations of uncertainty in end markets that are most impacted by the trade policy, we're just being prudent and making sure. We're ahead of it as they actually formulate themselves if they do.

Speaker Change: Largest businesses, how are you thinking about perhaps pricing or pricing power.

Speaker Change: So it was going to be raising prices, 2% to 5% in July does that give you some cover for pricing and for yourselves.

Speaker Change: Are you thinking about.

Speaker Change: Ongoing cross sell opportunities with <unk> and so forth.

Speaker Change: This is the range that we see.

Okay.

Speaker Change: On the other hand is.

Speaker Change: Yeah.

Speaker Change: New environment, neither customers will begin to disaggregate the deals and do maybe ones can be let Iraq with them at a time.

Kristian Talvitie: Like, how should we think about what are some of the components that would go into getting to that 7%? Yeah, thanks. It's a good question. You know, I would say that, you know, first of all, the churn has been low now for a couple years, we expect it to continue to remain low, even in some of the prior macro situations that the company's been in, we haven't actually seen significant increases in the churn rates. So it really is more down to new business and how that is coming in. Again, is it smaller bite-sized chunks, et cetera, et cetera.

Speaker Change: Your next question comes from the line of James Lee Shower with Griffin Securities. Please go ahead.

Speaker Change: Yeah, let me start with the.

Speaker Change: Thank you good evening.

Speaker Change: Neil Christian Rob.

The demand and and.

Speaker Change: Perhaps almost irrespective of the tariffs morass, maybe we can talk about the underlying growth.

Speaker Change: They call it the seat size.

Speaker Change: Of the equation, and then Christian and or Rob can talk about the commercial optimization piece.

Speaker Change: Dynamics of the business organically.

Speaker Change: The vertical approach that we undertook at the beginning of the year. The go to market transformation is all intended to ensure we're capturing more wallet share in the verticals that were strong in and have a concise determined effort led by Rob to make sure that we execute better across that.

Speaker Change: For instance, when we think about your two largest killers, CAD and <unk>. It would seem that the active base growth. There for each is mid single digits and that seems likely to continue to have churn remains low so over and above that mid single digit for your two largest businesses. How are you thinking about perhaps pricing or pricing power.

Speaker Change: Demand opportunity that is getting better on a monthly basis, because it will transfer transformation is getting more urgent.

Speaker Change: Sure.

Speaker Change: There's always going to be raising prices, 2% to 5% in July does that give you some cover for pricing and for yourselves how.

Speaker Change: That is the premise of the work that we're putting hard work that we're putting in it's going to take a few quarters to really see the fruits of that labor, but is to expand the utilization of windshield to expand the utilization of Korea to cross sell a L. M to think about S. L M being integrated in a vertical approach.

Speaker Change: How are you thinking about.

Kristian Talvitie: And just to add to this, we chose to give this guidance range, different than some others out there that are still looking at the environment. We want to be proactive about it. And the way you look at, if you think about the Q4 number to your question, the low end is 55 million in that new ARR. The high end is 85 million, right, at 9%. Last Q4, we did 84. In 2023, we did 76. And so when we look at that 20 million or so downside protection, you know, we did that bottoms-up view. We know every customer and made assessments around what could push, what could get smaller bite size.

Speaker Change: Ongoing cross sell opportunities with <unk> and so forth.

Speaker Change: Or on the other hand does the new environment means that customers will begin to disaggregate the deals and do maybe wants to be let Iraq with them at a time.

Speaker Change: The way supplemented by a solid generative AI technology layer that really leverages all of that all of that great system work that we've got that that's like still in the works and in the futures that being said in Q2, you saw again examples of I think if you looked at the bullets CAD.

Speaker Change: Thank you.

Speaker Change: Let me start with that.

Speaker Change: The demand and end the call.

Speaker Change: At the seat size.

Speaker Change: Out of the equation, and then Christian and or Rob can talk about the commercial optimization piece.

Speaker Change: The vertical approach that we undertook at.

Speaker Change: At the beginning of the year. The go to market transformation is all intended to ensure we're capturing more wallet share in the verticals that were strong in and have a concise determined effort led by Rob to make sure that we execute better across that demand opportunity that is getting better on a monthly basis.

Speaker Change: <unk> right. So in many of these cases, we're going into a vertical approach and saying.

Kristian Talvitie: And then to your question around other crises, we looked at what happened in those other really dramatic crises, which, quite frankly, I don't believe personally that that will happen in this go-around. But if it does, what we saw was a 20 to 30% reduction in conversion rates when things really fell apart in the industry. So top-down, bottoms-up, we came to that 20 million risk is a good risk profile if things get materially worse in Q3, Q4. And you'd see it more broadly across the business. throughout the channel. and elsewhere on the correct base, it's not just them.

Speaker Change: Can you consolidate your CAD state and we saw that happen in Q2.

Speaker Change: Methodical way that Rob CK are making sure that this happens.

Speaker Change: The biggest impetus of why we did this go to market transformation and that's our Northstar commercial optimization do you guys want to Rob do you want to start and then yes, I mean, where we can come in behind that and just extra structures to make sure that the comp plans are aligned to support those moves and we have the folks bought it at the field level.

Speaker Change: It'll transform transformation is getting more urgent.

Speaker Change: That is the premise of the work that we're putting hard work that we're putting in that's going to take a few quarters to really see the fruits of that labor, but is to expand the utilization of windshield expand the utilization of Korea to cross sell a L. M to thank a lot S. L M being integrated and vertical approach by the.

Speaker Change: And doing the right thing by the customer and.

Speaker Change: And the company rewards them as well so that's a very important part of it. So we have alignment there and we'll continue to work to make sure that that set up well, especially as we developed really strong outcomes oriented top tracks that we can engage with our customers on.

Speaker Change: <unk> supplemented by a solid generative AI technology layer that really leverages all of that all of that great system work that we've got that that's like still in the work and in the futures that being said in Q2, you saw again examples of it.

Jason Celino: Your next question comes from the line of Jason Celino with KeyBank Capital Markets. Please go ahead. Perfect. You know, thank you for taking my question.

Speaker Change: Historically at a horizontal level some of the positioning was really.

Speaker Change: From our perspective out to the customer when you start talking in the vertical format you start talking back from the customers problem that you're trying to solve to the way we can help them solve it and so that really adds extra credibility to discussion and elevates the conversation and I think.

Neil Barua: Or just one question, that is, so one of your competitors talked about seeing some pauses in deal activity at the end of March, but then things kind of normalized in April. This doesn't sound like a dynamic that you're kind of talking about today. But is this something that you saw? I'm just curious on how some of that demand activity might have changed.

Speaker Change: If you looked at the bullets CAD consolidation right. So in many of these cases, we're going into a vertical approach and saying.

Speaker Change: Can you consolidate your CAD state and we saw that happen in Q2.

Speaker Change: Methodical way that Rob CK are making sure that this happens.

Speaker Change: We're in a good position there as well.

Speaker Change: The biggest impetus of why we did this go to market transformation and that's our Northstar commercial optimization do you guys want to Robin do you want to start and then yes, I mean, where we can come in behind that and just extra structures to make sure that the comp plans are aligned to support those moves and we have the folks bought it at the field level.

Speaker Change: Your next question comes from the line of mainstay.

Neil Barua: Neil, I know you talked about some of the convos you've been in, but curious on the Yeah, I couldn't make sense of what our competitors said on that front. But in terms of our business, most importantly, you know, we had a solid quarter in Q2, like this, like, look at the customer appendix slides, some, by the way, disruptive moves that we did competitive displacements that were made with real sizable accounts, right? So strong demand environment, I want to reiterate, we've entered Q3, we continue to see an extremely strong, a good, strong, high quality pipeline that we're continuing to build upon with Rob's hard work here.

Darren: Darren Please go ahead.

Speaker Change: Hi, Thanks.

Speaker Change: Taking my question, if I could start with some of the <unk>.

Speaker Change: <unk> had some compensation that you mentioned that suggest that you might have some of the deals postponed or the deal size is coming is smaller than what you expected and you called out. An example, I jump on the Med Tech end market I was wondering.

Speaker Change: And doing the right thing by the customer and.

Speaker Change: And the company rewards them as well so that's a very important part of it. So we have alignment there and we will continue to work to make sure that that set up well, especially as we developed really strong outcomes oriented top tracks that we can engage with our customers on.

Speaker Change: These completions happening across the board.

Speaker Change: The common theme happening more so than some of the third of course than others.

Speaker Change: Also comment from a geo perspective between Kennan PNM that would be super helpful and then.

Speaker Change: Historically at a horizontal level some of the positioning was really.

From our perspective out to the customer when you start talking in the vertical format. You started talking back from the customers problem that you're trying to solve to the way we can help them solve it so that really adds extra credibility to discussion and elevates the conversation and I think we.

Speaker Change: My second part of the question is the top end of the guidance around 9%.

Neil Barua: So we feel like the demand environment is solid.

Neil Barua: What we're portraying in this new guidance range is making sure these initial conversations of uncertainty in end markets that are most impacted by the trade policy, we're just being prudent, and making sure we're ahead of it, as they actually formulate themselves, if they do, this is the range that we see.

Speaker Change: It's assumed in that plays into that the current macro uncertainty continue school age two.

Speaker Change: Or what would happen if we have meaningful glue.

Speaker Change: We're in a good position there as well.

Speaker Change: Global trade agreements in this quarter next quarter. Please.

Speaker Change: Your next question comes from the line is maintained.

Speaker Change: Yes, so great question.

Darren: Darren Please go ahead.

Speaker Change: Really glad you asked it.

Speaker Change: I'd start with the first part of your question around the conversation that we're having.

Darren: Hi.

Jay Vleeschhouwer: Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Please go ahead. Thank you. Good evening.

Darren: Thanks for taking my question.

Darren: I can start with some of the conversation has been compensation that you mentioned that suggests that you might have some of the deals postpone or the deal size is coming is smaller than what you expected.

Speaker Change: They are idiosyncratic based on where the customer is and the level of the transformation and competitive positioning that they're under right. So as an example, I can't make a broad brush statement that says, we're having conversations with automotive Oems that are all pulling guidance and they are all now telling us.

Neil Barua: Neil, Kristian, Rob, perhaps almost irrespective of the tariffs morass, maybe we can talk about the underlying growth dynamics of the business organically. For instance, when we think about your two largest pillars, CAD and PLM, it would seem that the active base growth there for each is in the mid-single digits, and that seems likely to continue if churn remains low. So over and above that mid-single digit for your two largest businesses, how are you thinking about perhaps pricing or pricing power? DeSoto is going to be raising prices 2% to 5% in July. Does that give you some cover for pricing and for yourselves?

Darren: Can you call out some examples in the Med Tech end market I was wondering.

Darren: These companies happening across the board to the company.

Darren: Most of them in terms of the third of course than others.

Speaker Change: We're going to stop buying from any of the software vendors because they are in Pearl out paralysis mode. In some cases, we actually announce something this morning.

Darren: Also comment from a geo perspective between canon PNM that would be super helpful and then.

Darren: And my second part of the question is the top end of the guidance 9%.

Speaker Change: Scheffler or the largest industrial parts manufacturers that actually is very centered around the automotive market. They just did a massive stretch strategic partnership deal multiyear deal, it's going to transform them to SaaS framework and you might question why would they sign something like that in this type of environment will be.

Darren: Is assumed in that plays into that the current macro uncertainty continue school age two.

Darren: Or what would happen if we have meaningful glib.

Darren: Global trade agreements in this quarter next quarter. Please.

Neil Barua: How are you thinking about ongoing cross-sell opportunities with ALM, SLM, and so forth? Or on the other hand, does the environment mean that customers will begin to disaggregate the deals and do maybe one three-letter acronym at a time? Thank you. Yeah.

Speaker Change: Because they have now understood that they've got to be even more nimble in this environment and so they move forward with that in other cases, there could be out of automotive Oems or parts of manufacturers, which again. This is the pipeline work we've done where they are earlier on in their diligence of how much they want to transform and theyre doing a lot of work.

Darren: Yes, so great question.

Darren: Really glad you asked it.

Darren: I'd start with the first part of your question around the conversations we're having.

Darren: They are idiosyncratic based on where the customer is and the level of the transformation and the competitive positioning that theyre under right. So as an example, I can't make a broad brush statement that says, we're having conversations with automotive Oems that are all pulling guidance and they are all now telling us.

Neil Barua: Let me start with the demand and call it the seed size side of the equation. And then Kristian or Rob can talk about the commercial optimization. The vertical approach that we undertook at the beginning of the year, the go-to-market transmission is all intended to ensure we're capturing more wallet share in the verticals that we're strong in and have a concise, determined effort led by Rob to make sure that we execute better across that demand opportunity that is getting better on a monthly basis because digital transformation is getting more urgent. That is the premise of the work that we're putting, hard work that we're putting in.

Speaker Change: Why windchill could help them and they are coming to us and saying this sounds great. We're down the path of selecting someone it's going to take another four weeks of selected but at the end of the four weeks.

Darren: We're going to stop buying from any of the software vendors because theyre in Pearl out paralysis mode. In some cases, we actually announce something this morning.

Speaker Change: This tariff issue does not get resolved or still unclear. The way. It currently it is to them we might have to pull back and this might push into Q1 of next year or I might take a smaller chunk and.

Darren: Schaeffler, one of the largest industrial parts manufacturers that actually is very centered around the automotive market. They just did a massive strapped strategic partnership deal multiyear deal, it's going to transform them to SaaS framework and you might question why would they sign something like that in this type of environment will be.

Speaker Change: So.

Speaker Change: There is no broad brush of within Japan, or EMEA or North America. There is patterns across everyone that I could standardize on but we're staying very close watch on our pipeline.

Neil Barua: It's going to take a few quarters to really see the fruits of that labor, but is to expand the utilization of Windchill, to expand the utilization of Creo, to cross-sell ALM, to think about SLM being integrated in a vertical approach, by the way, supplemented by a solid generative AI technology layer that really leverages all that great system work that we've got. That's still in the work and in the futures. That being said, in Q2, you saw, again, examples of, I think if you looked at the bullets, CAD consolidation. In many of these cases, we're going into a vertical approach and saying, Can you consolidate your CAD estate?

Speaker Change: Opportunity perspective by pipeline opportunities. So that's number one on your second part of how we got from 10 to nine and if things get better could they get better than nine.

Darren: Because they have now understood that they've got to be even more nimble in this environment and so they move forward with that in other cases, there could be out of automotive Oems or parts manufacturers, which again that this is the pipeline work. We've done we're there earlier on in their diligence of how much they want to transform and Theyre doing a lot of work about.

Speaker Change: Our our view is we have already lost 30 days since April 3rd or April 4th the current conversations and when I was on with US with the exact team of a large food processing equipment manufacturer one of the largest ones in the world that are out of Europe. This morning.

Darren: Why windchill could help them and they are coming to us and saying this sounds great. We're down the path of selecting someone it's going to take another four weeks of selected but at the end of the four weeks.

Speaker Change: They are clearly going to move forward with digital transformation, but they are right now trying to figure out where to send excess supply to before the reciprocal tariffs might get taken off the table and so they're like over the next six weeks, we just can't do anything other than figure out how we move supply around the world.

Darren: This tariff issue does not get resolved or still unclear. The way. It currently it is to them we might have to pull back and this might push into Q1 of next year or I might take a smaller chunk and.

Robert Dahdah: We saw that happening. The methodical way that Rob, CK are making sure that this happens is the biggest impetus of why we did this go-to-market transformation, and that's our North Star.

Darren: There is no broad brush of within Japan, or EMEA or North America. There is patterns across everyone that I could standardize on but we're staying very close to <unk> on a pipeline.

Speaker Change: We'll come back to digital transformation after hopefully the trade policies get squared away assume they all get squared away. We still believe at this current time, we've lost some time in the five months left we have in the quarter again very different than other companies up 12, 31, we only have five months left hence the range of <unk>.

Robert Dahdah: Commercial optimization, do you guys want to, Rob, do you want to start? Yeah, I mean, where we can come in behind that and just extra structure is to make sure that the comp plans are aligned to support those moves, and we have the folks bought in at the field level, and it's doing the right thing by the customer, and the company rewards them as well, and so that's a very important part of it, so we have alignment there, and we'll continue to work to make sure that that's set up well, especially as we develop really strong outcomes-oriented top tracks that we can engage with our customers on.

Darren: Opportunity perspective by pipeline opportunities. So that's number one on your second part of how we got from 10 to nine and if things get better could they get better than nine.

Speaker Change: The 9%.

Darren: Our view is we have already lost 30 days since April 3rd or April 4th the current conversations and when we you know I was on with US with the exact team of a large food processing equipment manufacturer one of the largest ones in the world.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of Joshua Tilton with Wolfe Research. Please go ahead.

Joshua Tilton: Hey, guys can you hear me.

Speaker Change: Hey, Josh.

Robert Dahdah: Historically, at a horizontal level, some of the positioning was really from our perspective out to the customer. When you start talking in the vertical format, you start talking back from the customer's problem that you're trying to solve to the way we can help them solve it, and so that really adds extra credibility to the discussion, it elevates the conversation, and I think we're in a good position there.

Joshua Tilton: Okay.

Joshua Tilton: Yeah.

Darren: At Europe this morning.

Joshua Tilton: Yeah.

Darren: They are clearly going to move forward with digital transformation, but they are right now trying to figure out where to send excess supply to before the reciprocal tariffs might get taken off the table and so there are like over the next six weeks, we just can't do anything other than figure out how we move supply around the world.

Joshua Tilton: Also two parts.

Sorry to keep pounding on the guidance.

Joshua Tilton: But I guess hypothetically if you guys have 10 customers and three customers or you are having these conversations with where it suggest things can get right size or or delayed does the mid point of that seven to nine range does that assume that just those three customers pushing out or is there a cushion within the midpoint of the guidance for those conversations.

Darren: We'll come back to digital transformation after hopefully the trade policies get squared away assume they all get squared away. We still believe at this current time, we've lost some time in the five months left we have in the quarter again very different than other companies up 12, 31, we only have five months left hence the range of <unk>.

Nancy Nguyen: Your next question comes from the line of Nancy Nguyen with Beringberg. Please go ahead. Hi, thank you for taking my question. If I could start with some of the conversations, captain conversation that you mentioned.

Youre having today.

Joshua Tilton: It's kind of be more broader based and then the second part of my question is.

Joshua Tilton:

Joshua Tilton: I go back to kind of a follow up to the last one of these conversations that youre, having with customers are they really so scary that what was previously the low end of the guidance last quarter has now become the high end of the guidance.

Neil Barua: Unknown Attendee, Matthew Shimao, Saket Kalia, Jay Vleeschhouwer, Unknown Attendee, Matthew Shimao, Saket Kalia, Jay Vleeschhouwer, Sitan These conversations are happening across the board or the conversation happening more so in some of the verticals than others. If you could also comment from the geo perspective between CAN and PLM, that would be super helpful. And then my second part of the question is, you know, the top end of the guide now 9%. Can I ask what is assumed in that place? Is it that the current global trade agreements in Yeah, so great question. Really glad you asked it.

Darren: 79%.

Darren: Okay.

Joshua Tilton: Yeah.

Speaker Change: Your next question comes from the line of Joshua Tilton with Wolfe Research. Please go ahead.

Joshua Tilton: So let me start with the last question first.

Joshua Tilton: Hey, guys can you hear me.

Joshua Tilton: Yeah.

The situation that has started for all of us, particularly in most importantly, the end markets that PTC serves has been dramatic since April 4th.

Hey, Josh.

Joshua Tilton: Okay.

Joshua Tilton: <unk>.

Joshua Tilton: Also two parts and.

Joshua Tilton: Sorry to keep pounding on the guidance.

Joshua Tilton: As you guys are watching it guidance is being pulled from a lot of our end market customers that means they don't know what they're going to do or what they see and even the subsequent quarter that then relates a conversation that says.

Joshua Tilton: But I guess hypothetically if you guys have 10 customers and three customers or you are having these conversations with where it suggest things can get right sized or or or delayed does the midpoint of that seven to nine range does that assume that just those three customers pushing out or is there cushion within the midpoint of the guidance for those conversations.

Joshua Tilton: What are the things, we absolutely need to do and what are the things that are nice to do and in some cases.

Neil Barua: I'd start with the first part of your question around the conversation we're having. They are idiosyncratic based on where the customer is, and the level of the transformation and competitive position that they're under, right? So as an example, I can't make a broad brush statement that says, we're having conversations with automotive OEMs that are all pulling guidance, and they are all now telling us they're going to stop buying from any of the software vendors because they're in paralysis mode. In some cases, we actually announced something this morning, Schaeffler, one of the largest industrial parts manufacturers that actually is very centered around the automotive market, they just did a massive strategic partnership deal, multi-year deal, it's going to transform them to our SaaS framework.

Joshua Tilton: You are having today.

Joshua Tilton: To kind of be more broader based and then the second part of my question is.

Joshua Tilton: Working with PTC signing on the dotted line to expand their technology and PTC is a must have to be competitive even in this tough environment, hence, where we sit and our 7% to 9% range.

Joshua Tilton: I go back to kind of a follow up to the last one of these conversations that youre, having with customers are they really so scary that what was previously the low end of the guidance last quarter has now become the high end of the guidance.

Joshua Tilton: But at other scenarios.

Joshua Tilton: Really could mean, a delay or <unk>.

Joshua Tilton: Extending out our debt.

Joshua Tilton: <unk>, they decide or making a smaller decision. So I wouldn't say, they're scary we'd been in other crises I've done this multiple times and this team is experienced enough to do it as well.

Joshua Tilton: So let me start with the last question first.

Joshua Tilton: The situation that has started for all of us, particularly in most importantly, the end markets that PTC serves has been dramatic since April 4th.

Joshua Tilton: This has been very impactful to our end market customers from their ability to decide clearly how to think about their business and where and invest for the future.

Joshua Tilton: It's as you guys are watching it guidance is being pulled from a lot of our end market customers that means they don't know what theyre going to do or what they see and even the subsequent quarter that then relates to conversation that says.

Joshua Tilton: Hopefully that gets taken care of and there was more certainty as the weeks progress and trade deals are announced and people know how to navigate with discipline around the guide route guide rails that they run their business.

Neil Barua: And you might question, well, why would they sign something like that in this type of environment? Well, because they have now understood that they've got to be even more nimble in this And so they've moved forward with that. In other cases, there could be automotive OEMs or parts manufacturers, which again, this is the pipeline work we've done, where they're earlier on in their diligence of how much they want to transform. And they're doing a lot of work about why Windchill could help them. And they're coming to us and saying, this sounds great, we're down the path of selecting someone, it's going to take another four weeks to select it.

Joshua Tilton: What are the things, we absolutely need to do and what are the things that are nice to do and in some cases.

Joshua Tilton: On how you should think about it look we want to be really.

Joshua Tilton: Working with PTC signing on the dotted line to expand their technology and PTC is a must have to be competitive even in this tough environment, hence, where we sit and our 7% to 9% range.

Joshua Tilton: Transparent with all of you.

Joshua Tilton: 7% to 9% range I think we did a lot of justice hopefully on this call around.

Joshua Tilton: The ways in which 7% on the lowest end could look like the ways. We're looking at that we also mentioned that 9% coming into this quarter. We had pipeline that felt really strong under our original got we also have mentioned this go to market transformation is starting to hit stride, it's going to take much.

Joshua Tilton: But at other scenarios, it really could mean a delay or.

Joshua Tilton: Extending out.

Joshua Tilton: The time period, they decide or making a smaller decision. So I wouldn't say, they're scary we've been in other crises that have done this multiple times and this team is experienced enough to do it as well. This has been very impactful to our end market customers from their ability to decide clearly.

Neil Barua: But at the end of the four weeks, if this tariff issue does not get resolved, or still unclear the way it currently is to them, we might have to pull back and this might push into Q1 of next year, or I might take a smaller chunk.

Joshua Tilton: <unk> quarters to show it but that's on track. We also said the strategic priorities of the company have been working well you saw that in Q2 in terms of how customers are buying and so we're working really hard to make sure we capture as much demand as possible after that pipeline, hence our range and how we see it.

Neil Barua: And so, you know, there is no broad brush of within Japan, or EMEA, or North America, there is patterns across everyone that I could standardize on. But we're staying very on a pipeline opportunity perspective by pipeline opportunities. So that's number one.

Joshua Tilton: How to think about their business and where to invest for the future.

Joshua Tilton: Hopefully that gets taken care of and there is more certainty as the weeks progress and trade deals are announced and people know how to navigate with discipline around the guide route guide rails that they run their business.

Speaker Change: Your next question comes from the line of Tyler Radke with Citi. Please go ahead.

Peter: Hey, this is Peter on the line for Tyler Radke.

Neil Barua: On your second part of how we got from 10 to nine, and if things get better, could they get better than nine? Our view is we have already lost 30 days. April 3rd or April 4th the current conversations and when we you know I was on with us with the exec team of a large food processing equipment manufacturer one of the largest ones in the world out of out of Europe this morning. they are clearly going to move forward with digital transformation, but they're right now trying to figure out where to send excess supply to before the reciprocal tariffs might get taken off the table.

Joshua Tilton: On how you should think about it look we want to be really.

Peter: A quick one for me on the macro uncertainty I was just wondering if youre seeing.

Joshua Tilton: Transparent with all of you.

Peter: Uncertainty for a specific product or if it's in a specific vertical.

Speaker Change: 7%, 9% range I think we did a lot of justice hopefully on this call around.

Peter: If there's any more color you guys provided on that at all thanks.

Speaker Change: The ways in which 7% on the lowest end could look like the ways. We're looking at that we also mentioned that 9% coming into this quarter. We add pipeline. That's felt really strong under our original got we also have mentioned this go to market transformation is starting to hit stride, it's going to take much.

Peter: Yes. This is not product related we have all of our products. Fortunately our mission critical products that the world.

Peter: Users and we all rely upon these companies to produce things out there and so our products are the underpinning of the great products that are out there in the world. So that's it's not a product specific issue. This is just how do customers think about investment decisions in light of uncertainty around the guard rails that they need to understand.

Speaker Change: It'll quarters to show it but that's on track. We also said the strategic priorities of the company have been working well you saw that in Q2 in terms of how customers are buying and so we're working really hard to make sure we capture as much demand as possible after that pipeline, hence our range and how we see it.

Neil Barua: And so they're like, over the next six weeks, we just can't do anything other than figure out how we move supply around the world. We'll come back to digital transformation after hopefully the trade policies get squared away. Assume they all get squared away. We still believe at this current time, we've lost some time in the five months left we have in the quarter. Again, very different than other companies at 1231. We only have five months left, hence the range of 7% to 9%.

Peter: To run their businesses right, what the supply chain looks like what their input costs look like et cetera, et cetera, where manufacturing resides.

Peter: Which is all things that they are now needing to contemplate in light of what happened at the beginning of April So that's from that standpoint, and then too.

Speaker Change: Your next question comes from the line of Tyler Radke with Citi. Please go ahead.

Speaker Change: Hey, this is Peter on the line for Tyler Radke.

Peter: I think that's that covers probably both questions there.

Peter: Quick one for me.

Speaker Change: Macro uncertainty I was just wondering if youre seeing.

Peter: Yeah.

Peter: Uncertainty for a specific product or if it's in a specific vertical.

Peter: I will turn the call back over to Neil barrel for closing remarks, please stay on the line.

Joshua Tilton: Your next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead. Hey, guys, can you hear me? Hey, Josh? Hey, I'm beginning a new... Also two parts. Sorry to keep pounding on the guidance.

Peter: If there's any more color you guys provided on that at all thanks.

Peter: Sure.

Peter: Yeah. This is not product related we have all of our products. Fortunately our mission critical products that the world.

Speaker Change: Thank you everyone for joining us and for your questions today will be on the road in the weeks ahead participating in investor conferences in May Kristian will attend the Jpmorgan conference in Boston and Matt will attend the Bank of America Conference in New York In June Kristian will attend the Baird Conference in New York, The Wolf Virtual conference and the <unk>.

Peter: Users and we all rely upon these companies to produce things out there and so our products are the underpinning of the great products that are out there in the world. So that's it's not a product specific issue. This is just how do customers think about investment decisions in light of uncertainty around the guard rails that they need to understand.

Neil Barua: But I guess, hypothetically, you know, if you guys have 10 customers, and three customers are you're having these conversations with where it suggests things can get right size or delayed, does the midpoint of that seven to nine range, does that assume that just those three customers push out? Or is there cushion within the midpoint of the guidance for those conversations that you're having today, to kind of be more broader based?

Speaker Change: BMO Virtual conference Amit Jane will purchasing the Rosenblatt virtual conference and Matt will attend but sumo conference in New York.

Speaker Change: Christian and I will host to Investor visits Rob might join us too to our headquarters in Boston for the main visit you can reach out to RBC and for the June visit you can reach out to Stifel.

Peter: To run their businesses right, what the supply chain looks like what their input cost look like et cetera, et cetera, where manufacturing resides.

Peter: Which is all things that they are now needing to contemplate in light of what happened at the beginning of April So that's from that standpoint, and then too.

Neil Barua: And then the second part of my question is, I go back to kind of a follow-up to the last one, these conversations that you're having with customers, are they really so scary that what was previously the low end of the guidance last quarter has now become the high end of the guidance?

Speaker Change: Again for the engagement today look forward to speaking to you all soon.

Peter: I think that's that covers probably both questions there.

Speaker Change: <unk>.

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

Peter: Yeah.

Peter: Yeah.

Peter: I will turn the call back over to Neil barrel for closing remarks, please stay on the line.

Neil Barua: So let me start with the last question first. The situation that has started for all of us, particularly and most importantly, the end markets that PPC serves, has been dramatic since April 4th. You guys are watching it. Guidance is being pulled from a lot of our end market customers. That means they don't know what they're going to do or what they see. and even the subsequent quarter. That then relates to conversation that says, you know, what are the things we absolutely need to do? And what are the things that are nice to do? And in some cases, Working with PTC, signing on the dotted line to expand their technology with PTC is a must-have to be competitive, even in this tough environment, hence where we sit in our 7-9% range.

Peter: Sure.

Peter: Thank you everyone for joining us and for your questions today will be on the road in the weeks ahead participating in investor conferences in May Kristian will attend the Jpmorgan conference in Boston and Matt will attend the Bank of America Conference in New York In June Kristian will attend the Baird Conference in New York, The Wolf Virtual conference and the.

Peter: BMO Virtual conference Amit Jane will participate in the Rosenblatt Virtual conference and Matt will attend but suitable conference in New York.

Speaker Change: Kristian and I will host to Investor visits Rob might join us too to our headquarters in Boston for the May visit you can reach out to RBC and for the June visit you can reach out to Stifel.

Peter: Thank you again for the engagement today look forward to speaking to you all soon.

Speaker Change: <unk>.

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

Neil Barua: But in other scenarios, it really could mean a delay or This has been very impactful to our end market customers from their ability to decide clearly how to think about their business and where to invest.

Speaker Change: Yeah.

Neil Barua: Hopefully that gets taken care of and there's more certainty as the weeks progress and trade deals are announced and people know how to navigate with discipline around the guide rails that they run their business on. On how you should think about it, look, we want to be really transparent with all of you. It's a seven to nine percent range. I think we did a lot of justice, hopefully on this call, around the ways in which seven percent on the lowest end can look like, the ways we're looking at. We also mentioned that 9% coming into this quarter, we had pipeline that felt really strong on our original guide.

Neil Barua: We also mentioned this go-to-market transformation is starting to hit stride. It's going to take multiple quarters to show it, but that's on track. We also said the strategic priorities of the company have been working well. You saw that in Q2 in terms of how customers are buying. And so we're working really hard to make sure we capture as much demand as possible off of that pipeline, hence our range and how we see it.

Tyler Radke: Your next question comes from the line of Tyler Radke with Citi, please go ahead.

Peter: Hey, this is Peter on the line for Tyler Radke. Just a quick one for me. On the macro uncertainty, I was just wondering if you're seeing a risk uncertainty for a specific product or if it's in a specific vertical? If there's any more code you have to provide on that at all?

Neil Barua: Yeah, this is not product related. We have all of our products, fortunately, are mission critical products that the world uses. And we all rely upon these companies to produce things out there. And so our products are the underpinning of the great products that are out there in the world. So that's, it's not a product specific issue. This is just how do customers think about investment decisions, in light of uncertainty around the guardrails that they need to understand to run their businesses? Right? What the supply chain looks like, what their input costs look like, etc, etc, where manufacturing resides, which is all things that they're now needing to contemplate in light of what happened at the beginning of April.

Neil Barua: So that's like from that standpoint.

Neil Barua: And then two, I think that's, that covers probably both questions there.

Neil Barua: I will turn the call back over to Neil Barua for closing remarks. Please stay in the line. Sure.

Neil Barua: Thank you, everyone, for joining us. And for your questions today, we'll be on the road in the weeks ahead, participating in investor conferences. In May, Kristian will attend the JP Morgan conference in Boston, and Matt will attend the Bank of America conference in New York. In June, Kristian will attend the Baird conference in New York, the Wolf virtual conference, and the BMO virtual conference. Amit Jain will participate in the Rosenblatt virtual conference, and Matt will attend Mizumo conference in New York. Kristian and I will host two investor visits. Rob might join us, too, to our headquarters in Boston.

Neil Barua: For the May visit, you can reach out to RBC, and for the June visit, you can reach out to Stiefel. Thank you again for the engagement today.

Chair, Conference: Look forward to speaking to you all soon.

Chair, Conference: Ladies and gentlemen, that concludes today's call. Thank you all for joining.

You may now disconnect.