Q3 2026 PTC Inc Earnings Call

July 29, 2026

Speaker #1: This call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. I would now like to turn the call over to Mike McGuire, PTC's Head of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Operator, and good afternoon, everyone. Welcome to PTC's third quarter 2026 conference call. On the call today are Neil Barua, Chief Executive Officer, and Jen DiRico, Chief Financial Officer.

Speaker #1: Good evening, ladies and gentlemen. Thank you for standing by, and welcome to PTC's 2026 third-quarter conference call. During today's presentation, all parties will be in a listen-only mode.

Speaker #2: 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.

Speaker #1: the conference will be open for questions. I would now like to turn the call over to Mike McGuire, PTC's Head of Investor Relations. Please go ahead.

Speaker #2: 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, quarterly reports on Form 10-Q, and other filings with the U.S.

Speaker #2: Thank you, operator, and good afternoon, everyone. Welcome to PTC's third-quarter 2026 conference call. On the call today are Neil Barua, Chief Executive Officer; and Jen DeRico, Chief Financial Officer.

Speaker #2: Securities and Exchange Commissions, as well as in today's press release. The forward-looking statements including guidance provided during this call are valid only as of today's date July 29, 2026, and PTC assumes no obligation to update these forward-looking statements.

Speaker #2: 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 comparable GAAP measures can be found in today's press release, made available on our website.

Speaker #2: Securities and Exchange Commissions, as well as in today's press release. The forward-looking statements including guidance provided during this call are valid only as of today's date, July 29, 2026, and PTC assumes no obligation to update these forward-looking statements.

Speaker #2: With that, I'd like to turn the call over to PTC's Chief Executive Officer, Neil Barua. Neil?

Speaker #3: Thank you, Mike. PTC delivered another strong quarter in Q3. In particular, I'd highlight the $60 million of net new ARR we generated. Year-over-year constant currency ARR and free cash flow growth both exceeded the high end of our guidance range.

Speaker #3: There are a lot of positives from Q3. Our intelligent product lifecycle solutions continued driving customer demand and business performance across verticals, geographies, and products.

Speaker #2: With that, I'd like to turn the call over to PTC's Chief Executive Neil?

Speaker #3: Our customers faced growing pressure to shorten development cycles, improve resilience, and compete in an AI-driven world. They understand that their product data is a strategic enterprise asset to help drive better decisions, and are turning to our CAD, PLM, ALM, and SLM systems of record to build their product data foundations.

Speaker #3: Thank you, Mike. PTC delivered another strong quarter in Q3. In particular, I'd highlight the $60 million of net new ARR we generated. Year over year, constant currency ARR and free cash flow growth both exceeded the high end of our guidance range.

Speaker #3: From an execution standpoint, we have turned the corner with our go-to-market transformation. We are seeing the results of the transformation in our customer widths, including deeper vertical expertise executive-level engagement, and better cross-team collaboration.

Speaker #3: Our customers face growing pressure to shorten development cycles, improve resilience, and compete in an AI-driven world. They understand that their product data is a strategic enterprise asset to help drive better decisions, and are turning to our CAD, PLM, ALM, and SLM systems of record to build their product data foundations.

Speaker #3: We had several notable wins this quarter, some of which are referenced in the appendix. But as an example, these results played an important role in a win with a major defense contractor to help modernize engineering operations for one of its critical business segments.

Speaker #3: From an execution standpoint, we have turned the corner with our go-to-market transformation. We are seeing the results of the transformation in our customer wins, including deeper vertical expertise, executive-level engagement, and better cross-team collaboration.

Speaker #3: Q3 also reinforced that our product and AI innovation is taking hold with customers. AI will be a tailwind for our business because AI requires our systems of record and the product data stored in them to be effective.

Speaker #3: We had several notable wins this quarter, some of which are referenced in the appendix. But as an example, these results played an important role in a Q3 competitive PLM win with a major defense contractor to help modernize engineering operations for one of its critical business segments.

Speaker #3: Our systems structure product data in the context of engineering and service workflows, whether it's product design, a specific product configuration, or a service work order.

Speaker #3: We then apply AI to the structured, contextualized data so it can complete increasingly complex tasks. We also provide the governance and access controls that are essential for safe and trustworthy AI use.

Speaker #3: We are encouraged by our AI progress and the potential in front of us. We continue delivering on our roadmap with the recent releases of Creo AI, our AI-native PTC Orbit product, and the launch of Onshape Labs.

Speaker #3: Our systems structure product data in the context of engineering and service workflows, whether it's product design, a specific product configuration, or a service work order.

Speaker #3: Onshape is strongly positioned for AI. Its cloud-native architecture, highly scalable data model, and built-in collaboration make it ideal for AI workflows with humans in the loop.

Speaker #3: More broadly, our customers tell us our embedded AI capabilities are the fastest path to adoption and value because AI is delivered in the context of trusted systems and governed workflows.

Speaker #3: We are encouraged by our AI progress and the potential in front of us. We continue delivering on our roadmap with the recent releases of Creo AI, our AI-native PTC Atlas product, and the launch of Onshape Labs.

Speaker #3: In Q3, we won our largest AI deal ever. A near 7-figure service max AI deal with one of the world's largest industrial automation companies.

Speaker #3: Onshape AI. Its cloud-native architecture, highly scalable data model, and built-in collaboration make it ideal for AI workflows with humans in the loop. More broadly, our customers tell us our embedded AI capabilities are the fastest path to adoption, and value because AI is delivered in the context of trusted systems and governed workflows.

Speaker #3: This is a long-term customer that built a strong product data foundation with service max. Service max AI uses that foundation to deliver technicians relevant information via natural language interface, eliminating time spent searching documentation.

Speaker #3: The customer validated the approach through a pilot with service technicians, showing that service max AI can reduce technician preparation time by 50% and deliver 4% net productivity improvement across a service workforce.

Speaker #3: In Q3, we won our largest AI deal ever. A near 7-figure service-max AI deal with one of the world's largest industrial automation companies. This is a long-term customer that built a strong product data foundation with service-max.

Speaker #3: As our customers embrace AI, one of their top priorities is protecting their intellectual property. Their designs—configurations, builds of material, source hesitant to hand this data to the frontier model providers for security, regulatory, and competitive reasons.

Speaker #3: Service-max AI uses that foundation to deliver technicians' relevant information via natural language interface, eliminating time spent searching documentation. The customer validated the approach through a pilot with service technicians, showing that service-max AI can reduce technician preparation time by 50% and deliver 4% net productivity improvement across a service workforce.

Speaker #3: Instead, they need this data to remain inside governed enterprise environments, with appropriate permissions, process context, and controls. They increasingly want frontier models to operate as infrastructure, while trusted systems like PTC's provide the data and workflow layer where critical product work is performed.

Speaker #3: As our customers embrace AI, one of their top priorities is protecting their intellectual property. Their designs—configurations, bills of material, source code, and more—they are hesitant to hand this data to the frontier model providers for security, regulatory, and competitive reasons.

Speaker #3: From a commercial standpoint, AI is already increasing the strategic importance of our systems of record and the product data foundations they manage. We expect adoption to progress from focus workflows with clear customer ROI to broader deployments as customers connect more product data and teams across the lifecycle.

Speaker #3: Instead, they need this data to remain inside governed enterprise environments with appropriate permissions, process context, and controls. They increasingly want frontier models to operate as infrastructure, while trusted systems like PTC's provide the data and workflow layer where critical product work is performed.

Speaker #3: That creates value for customers today and over time expands our share of customer spend through direct adoption of PTC's AI capabilities. We expect these standalone AI capabilities to become a more meaningful contributor to ARR over the next few years.

Speaker #3: From a commercial standpoint, AI is already increasing the strategic importance of our systems of record and the product data foundations they manage. We expect adoption to progress from focused workflows with clear customer ROI to broader deployments as customers connect more product data and teams across the lifecycle.

Speaker #3: Overall, Q3 was a great start to the second half of the year, and our performance reinforced the major themes improved points of fiscal 26.

Speaker #3: We are entering Q4 with stronger execution, growing strategic relevance with customers with our intelligent product lifecycle strategy, and increasing confidence that AI will expand the value of our portfolio over time.

Speaker #3: That creates value for customers today and, over time, expands our share of customer spend through direct adoption of PTC's AI capabilities. We expect these standalone AI capabilities to become a more meaningful contributor to ARR over the next few years.

Speaker #3: With that, I'll turn the call over to Jeff.

Speaker #2: Thanks, Neil. And good afternoon, everyone. Q3 was a quarter of strong, and consistent execution. Highlighted by 60 million of net new ARR and broad-based strengths across our key financial metrics.

Speaker #3: Overall, Q3 was a great start to the second half of the year, and our performance reinforced the major themes and proof points of fiscal '26.

Speaker #2: We continue to see solid demand capture in our go-to-market motions and encouraging early traction across our AI offerings. Given the momentum we have built and the opportunities in front of us, we are entering Q4 from a place of strength and are well positioned for a strong finish to the year.

Speaker #3: With that, I'll turn the call over to Jeff.

Speaker #2: This is why we have chosen to increase the midpoint of our annual ARR growth guidance to 9.25%. At the end of Q3, our constant currency ARR was 2.448 billion dollars, up 9.1% year over year, excluding Kepler and ThingWorks.

Speaker #2: We continue to see solid demand capture in our go-to-market motions, and encouraging early traction across our AI offerings. Given the momentum we have built and the opportunities in front of us, we are entering Q4 from a place of strength and are well positioned for a strong finish to the year.

Speaker #2: Above the high end of our guidance range. In Q3, we generated operating cash flow of 261 million dollars, and free cash flow of 249 million dollars.

Speaker #2: This is why we have chosen to increase the midpoint of our annual ARR growth guidance to 9.25%. At the end of Q3, our constant currency ARR was $2.448 billion, up 9.1% year over year, excluding Kepware and ThingWorx.

Speaker #2: Exceeding our guidance range for both metrics. Turning to capital return. In Q3, we repurchased 525 million dollars of common stock, more than double our previously provided target.

Speaker #2: Reflecting opportunistic open market share repurchase, at what we viewed as a compressed stock price. This outsized repurchasing decreased fully diluted share count to 115 million shares in Q3.

Speaker #2: Above the high end of our guidance range. In Q3, we generated operating cash flow of 261 million dollars, and free cash flow of 249 million dollars.

Speaker #2: For the full year, we expect common stock repurchases to be approximately 1.625 billion dollars. An increase to our previous guidance of 1.225 to 1.325 billion dollars.

Speaker #2: Exceeding our guidance range for both metrics. Turning to capital return. In Q3, we repurchased 525 million dollars of common stock, more than double our previously provided target.

Speaker #2: We expect our fully diluted share count to decrease to approximately 116 million shares for the full year. Compared to 121 million shares in FY25.

Speaker #2: With that, I'll take you through our guidance. In fiscal 26, our constant currency ARR excluding Kepler and ThingWorks, we have raised the low end of our guidance and now expect growth of approximately 9 to 9.5%.

Speaker #2: For the full year, we expect common stock repurchases to be approximately 1.625 billion dollars. An increase to our previous guidance of 1.225 to 1.325 billion dollars.

Speaker #2: At net new ARR of 214 million dollars. This increase to the midpoint of our guide and the tightening of our guidance range reflects both our go-to-market execution as well as the pipeline visibility the team has prioritized over the past few quarters.

Speaker #2: We expect our fully diluted share count to decrease to approximately 116 million shares for the full year. Compared to 121 million shares in FY '25.

Speaker #2: With that, I'll take you through our guidance. In fiscal '26, our constant currency, ARR, excluding Kepler and ThingWorks, we have raised the low end of our guidance and now expect growth of approximately 9 to 9.5%.

Speaker #2: Consistent with our commentary in prior quarters, we expect a considerable step-up in net new ARR in Q4 compared to Q3. Our confidence in Q4 stems from the combination of strong demand generation and a meaningful increase in deferred ARR that we expect to convert into ARR during the quarter.

Speaker #2: At the midpoint, we are guiding for net new ARR of 214 million dollars. This increase to the midpoint of our guide, and the tightening of our guidance range reflects both our go-to-market execution as well as the pipeline visibility the team has prioritized over the past few quarters.

Speaker #2: In Q4, our constant currency ARR excluding Kepler and ThingWorks, our expectations correspond to a net new ARR range of 79 million to 92 million dollars.

Speaker #2: Consistent with our commentary in prior quarters, we expect a considerable step-up in net new ARR in Q4 compared to Q3. Our competence in Q4 stems from the combination of strong demand generation and a meaningful increase in deferred ARR that we expect to convert into ARR during the quarter.

Speaker #2: Moving to cash flow revenue and reminder, the Kepler and ThingWorks divesture did not meet the criteria for discontinued operations. And therefore, historical financial statement amounts have not been recast.

Speaker #2: This impacts the year-over-year growth calculations for revenue, EPS, and cash flow as fiscal 26 includes Kepler and ThingWorks up until the divestiture on March 13, 2026, whereas fiscal 25 includes Kepler and ThingWorks for the full year.

Speaker #2: In Q4, our constant currency, ARR, excluding Kepler and ThingWorks, our expectations correspond to a net new ARR range of 79 million to 92 million dollars.

Speaker #2: Moving to cash flow revenue and EPS. As a reminder, the Kepler and ThingWorks investor did not meet the criteria for discontinued operations. And therefore, historical financial statement amounts have not been recast.

Speaker #2: With that, we continue to expect to generate approximately 850 million dollars in free cash flow in fiscal 26. For Q4 26, we are guiding for free cash flow of approximately 15 million dollars.

Speaker #2: This impacts the year-over-year growth calculations for revenue, EPS, and cash flow as fiscal '26 includes Kepler and ThingWorks up until the divestiture on March 13, 2026, whereas fiscal '25 includes Kepler and ThingWorks for the full year.

Speaker #2: Lower year-over-year due to the capital gains outflows from the divestiture of Kepler and ThingWorks that are expected to occur in Q4. While the business remains focused on ARR and free cash flow, we're also providing revenue and EPS guidance to help you with your models.

Speaker #2: With that, we continue to expect to generate approximately $850 million in free cash flow in fiscal '26. For Q4 '26, we are guiding for free cash flow of approximately $15 million.

Speaker #2: In Q3, revenue of 600 million dollars was below the midpoint of our guide, reflecting only the shortened duration of a single large contract expansion.

Speaker #2: Deal durations across the broader business continue to hold. When coupling our Q3 performance with our current expectations for Q4, we feel comfortable raising the midpoint of our fiscal 26 revenue in non-GAAP EPS guidance.

Speaker #2: For fiscal 26, we are updating our revenue guidance to 2.69 to 2.75 billion dollars. And we are updating our non-GAAP EPS guidance range to $7.87 to $8.42.

Speaker #2: In Q3, revenue of 600 million dollars was below the midpoint of our guide, reflecting only the shortened duration of a single large contract expansion.

Speaker #2: In closing, I'm proud of Team PTC's execution and the progress we've made across the product lifecycle remains highly relevant to our customers and we are increasingly optimistic about the role AI can play in accelerating value creation across our portfolio.

Speaker #2: For fiscal '26, we are updating our revenue guidance to 2.69 to 2.75 billion dollars. And we are updating our non-GAAP EPS guidance range to $7.87 to $8.42.

Speaker #2: I'd like to thank our employees for their continued dedication and focus. With that, I'll turn the call back to the operator for the Q&A session.

Speaker #1: Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Speaker #2: In closing, I'm proud of Team PTC's execution and the progress we've made across the business. The intelligent product lifecycle remains highly relevant to our customers, and we are increasingly optimistic about the role AI can play in accelerating value creation across our portfolio.

Speaker #1: If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker #2: I'd like to thank our employees for their continued dedication and focus. With that, I'll turn the call back to the operator for the Q&A session.

Speaker #1: To be able to take as many questions as possible, we ask that you please limit yourself to one question only. If you have additional questions, please rejoin the queue.

Speaker #1: Again, it is star 1 to join the queue. And our first question comes from the line of Joe Vruwink with Baird. Your line is open.

Speaker #1: If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker #3: Oh, great. Thanks for taking my question. I wanted to ask, there's been a lot of coverage even since just the last earnings report on how open source models and commercial models are starting to engage more with CAD and PLM systems.

Speaker #1: To be able to take as many questions as possible, we ask that you please limit yourself to one question only. If you have additional questions, please rejoin the queue.

Speaker #3: I think there's also been a renewed focus on the importance of industrial data and there's been new ventures trying to take a stab at the engineering ecosystem with various data strategies synthetic data strategies.

Speaker #1: Again, it is star 1 to join the queue. And our first question comes from the line of Joe Vurink with Baird. Your line is open.

Speaker #3: I guess all that leads me to ask, what does PTC make of all of this over recent months and are you noticing any changes out of customers' own thinking that may be warrants changing your own approach?

Speaker #3: Oh, great. Thanks for taking my question. I wanted to ask, there's been a lot of coverage, even since just the last earnings report, on how open source models and commercial models are starting to engage more with CAD and PLM systems.

Speaker #4: Joe, thanks for the question. Let me say a few things on this one. So as you know, PTC has been in this space for over 40 years.

Speaker #3: I think there's also been a renewed focus on the importance of industrial data, and there have been new ventures trying to take a stab at the engineering ecosystem with various data strategies and synthetic data strategies.

Speaker #4: We've seen new entrants come into this market multiple times over that time. What's really kept us, and you're seeing it in the results, this quarter and what we've been talking about the last number of quarters, is that close relationship we have with our customers is resulting in what we're seeing as the value of PTC and which I'll talk about, the strength of our products, the criticality of our products to our customer operations.

Speaker #4: Joe, thanks for the question. Let me say a few things on this one. So as you know, PTC has been in this space for over 40 years.

Speaker #4: And quite frankly, you're seeing a level of innovation to make sure we stay at the forefront with our customers. That obviously now includes AI.

Speaker #4: We've seen new entrants come into this market multiple times over that time. What's really kept us, and you're seeing it in the results, this quarter and what we've been talking about the last number of quarters, is that close relationship we have with our customers is resulting in what we're seeing as the value of PTC, which I'll talk about, the strength of our products, the criticality of our products to our customer operations.

Speaker #4: So if I comment specifically on your question around AI focused startups, we see a lot of talk about new interfaces. But I want to be crystal clear.

Speaker #4: The structural advantage here at PTC is at the data and process level. If you think about making airplanes, cars, medical devices, you need strict governed workflows.

Speaker #4: And quite frankly, you're seeing a level of innovation to make sure we stay at the forefront with our customers. That obviously now includes AI.

Speaker #4: And with all your product data in context, in a manner that can be audited and traced for regulatory reasons, and it's super complex and sophisticated work, and that's why PTC's systems of records are so valuable.

Speaker #4: So if I comment specifically on your question around AI-focused startups, we see a lot of talk about new interfaces. But I want to be crystal clear.

Speaker #4: So we've been doing that for 40 years, Joe, and have close relations with our customers and we don't see this suddenly changing in any of our customer conversations.

Speaker #4: The structural advantage here at PTC is at the data and process level. If you think about making airplanes, cars, or medical devices, you need strictly governed workflows.

Speaker #4: You could see the momentum that we've built here at PTC, that's the result of the innovation, the trust that our customers have in modernizing with us the product data foundation, building AI with that context.

Speaker #4: And with all your product data in context, in a manner that can be audited and traced for regulatory reasons—and it's super complex and sophisticated work—and that's why PTC's systems of record are so valuable.

Speaker #4: We're obviously in summary, I'll say we're obviously watching all that's happening in the ecosystem but we're really focused on what we are seeing the energy around and the actual results, which is driving more customer demand enhancing our products, building new products and making more progress with AI.

Speaker #4: So we've been doing that for 40 years, Joe, and have close relations with our customers. And we don't see this suddenly changing in any of our customer conversations.

Speaker #4: So we're really energized by the position we're here within the question that you're asking, Joe.

Speaker #1: And our next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.

Speaker #5: Great. Thanks for taking my question, guys. I guess for either of you, given what seems like a stable selling environment, it was really good to see you take the low end of the consequence ARR guide up this year.

Speaker #4: We're obviously in summary, I'll say, we're obviously watching all that's happening in the ecosystem but we're really focused on what we are seeing the energy around and the actual results, which is driving more customer demand enhancing our products, building new products, and making more progress with AI.

Speaker #5: Neil, you spent a lot of time talking about new product innovation and I think we have to be patient with AI but it seems like it's coming.

Speaker #5: Jen, you talked about deferred ARR balance growing. I guess I'm wondering, I know it's still early for '27, fiscal '27, but can you outline a path to low double-digit ARR growth?

Speaker #4: So we're really energized by the position we're in here within the question that you're asking, Joe.

Speaker #1: And our next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.

Speaker #5: I mean, I guess what has to happen from your perspective because it feels like there's increasing tailwinds at your back. Thanks, guys.

Speaker #2: Yeah, thanks for the question. No, I laid out context on last quarter's call around this and even with the increase in our guidance from 9 to 9.5%, that context still remains and what I shared last quarter was that for us to accelerate growth, what you'd need to believe at a minimum is that we can, on the net new ARR business, perform on a like-for-like basis next year as we did this year.

Speaker #5: Neil, you spent a lot of time talking about new product innovation. I think we have to be patient with AI, but it seems like it's coming.

Speaker #5: Jen, you talked about deferred ARR balance growing. I guess I'm wondering, I know it's still early for '27, fiscal '27, but can you outline a path to low double-digit ARR growth?

Speaker #5: I mean, I guess what has to happen from your perspective? Because it feels like there's increasing tailwinds at your back. Thanks, guys.

Speaker #2: And then you add in the deferred ARR that we already have on our books, you would see an acceleration. And I would say we're still we're double downing we're doubling down on that statement even with the fact that the now midpoint of our guidance for this year is 9.25% versus 8.5% a quarter ago.

Speaker #2: Yeah, thanks for the question. No, I laid out context on last quarter's call around this. And even with the increase in our guidance from 9 to 9.5%, that context still remains.

Speaker #2: And what I shared last quarter was that, for us to accelerate growth, what you'd need to believe, at a minimum, is that we can, on the net new ARR business, perform on a like-for-like basis next year as we did this year.

Speaker #1: And our next question comes from the line of Daniel Jester with BMO Capital Markets. Your line is open.

Speaker #6: Great. Good evening. Thanks for taking my questions. Maybe we could just spend a moment hearing the feedback that your customers had on some of the new products that were announced.

Speaker #6: I know you spent a lot of time with them in Chicago in June. So I'd love to hear what their were sharing with you about them.

Speaker #6: Thank you.

Speaker #4: Yeah, thanks for the question. So what the majority of the feedback we're getting is an energy and excitement from our customers around the innovation that's super relevant to what the customers need.

Speaker #1: And our next question comes from the line of Daniel Jester with BMO Capital Markets. Your line is open.

Speaker #4: Whether it be the releases that we're making with the releases that we're going to do for PTC Jetstream or Orbit or all the AI releases that we're doing, it is accelerating our customers' appetite and requirement to use PTC to get the benefits of AI.

Speaker #6: Great, good evening. Thanks for taking my questions. Maybe we could just spend a moment hearing the feedback that your customers had on some of the new products that were announced.

Speaker #6: I know you spent a lot of time with them in Chicago in June, so I'd love to hear what they were sharing with you about them.

Speaker #6: Thank you.

Speaker #4: Yeah, thanks. So, thanks for the question. What the majority of the feedback we're getting is, is an energy and excitement from our customers around the innovation that's super relevant to what the customers need.

Speaker #4: And so that's showing up now in a number of these examples that we gave, but more broadly than the examples across what we've been seeing the last number of quarters, which is an energy and an urgency to go modernize their product data foundation because they want to take advantage of this new innovation and they got to get their digital house in order using PTC in many cases to displace other tools to standardize across our great products because to get the value of our AI capabilities, to get the value of the new innovation, they need to modernize with PTC.

Speaker #4: And that's showing up. And so I was very enthused by the feedback we got from Chicago extremely enthused, by the way, over the course of this year and starting in Q4 of last year as we're saying we've now turned the corner of customers really understanding the value proposition of PTC, how we're approaching them, the messaging, the innovation around it.

Speaker #4: So we're energized about the feedback that we've gotten since then and during the course of the last number of quarters.

Speaker #1: And our next question comes from the line of Jason Celino with KeyBank Capital Markets. Your line is open.

Speaker #7: Hey, great. Thanks for taking my question. This one's for Neil. We've seen some really cool things with AI and designing stuff with LLMs and kind of leads to better engineering efficiency.

Speaker #7: So my question is, what how this might play in the engineering market? Some industries are growing. Some aren't. So how do you see AI affecting underlying engineering headcount growth?

Speaker #4: So we're energized about the feedback that we've gotten since then. And during the course of the last number of quarters.

Speaker #1: And our next question comes from the line of Jason Salino with KeyBank Capital Markets. Your line is open.

Speaker #4: So let me start with we see AI as accelerating the utilization of what PTC has to deliver, first and foremost. How that happens is actually I'll give you an example.

Speaker #6: Hey, great. Thanks for taking my question. This one's for Neil. We've seen some really cool things with AI and designing stuff with LLMs and kind of leads to better engineering, efficiency.

Speaker #6: So my question is, what how this might play in the engineering market? Some industries are growing. Some aren't. So how do you see AI affecting underlying engineering headcount growth?

Speaker #4: Onshape, which is an incredible board in the cloud scalable cloud native architecture built in collaboration. Ideal for AI workflows. We're seeing that actually being utilized by AI foundational models AI startups to actually complete the design process to accelerate and enhance design processes that are done either by agents or human beings, but using Onshape as the central point to execute that.

Speaker #4: So let me start with, we see AI as accelerating the utilization of what PTC has to deliver, first and foremost. How that happens is, actually, I'll give you an example.

Speaker #4: Onshape, which is an incredible, born-in-the-cloud, scalable, cloud-native architecture built for collaboration—ideal for AI workflows—we're seeing that actually being utilized by AI foundational models and AI startups to complete the design process, to accelerate and enhance design processes that are done either by agents or human beings, but using Onshape as the central point to execute that.

Speaker #4: We see that as massive lift. In fact, the API calls to Onshape by AI-related startups is tripling just in a few months and it's just started to do that.

Speaker #4: Which is indicative of that gating momentum around using PTC's system of records, the product data foundation to use and get value of outcome of AI.

Speaker #4: And so we're seeing that happen. We gave you the example of ServiceMax in the service world, how AI is now giving real outcomes and efficiencies in real hard dollars to our customers on deploying it.

Speaker #4: We see that as massive lift. In fact, the API calls to Onshape by AI-related startups is tripling just in a few months. And it's just started to do that.

Speaker #4: So our point of view right now is that AI is going to be an accelerant over time in some cases of the examples I gave to you already is happening.

Speaker #4: Which is indicative of that gaining momentum around using PTC's system of records, the product data foundation to use and get value of outcome of AI.

Speaker #4: But we believe this will be a mid to long-term accelerant on AI individual monetization opportunities while at the same time doing what's happening with Onshape, which is I want best-in-class AI interface to a CAD tool so let me actually give all the competitive tools that we're using for CAD and actually have Onshape be the actual product data foundation for our CAD tool to leverage AI.

Speaker #4: So our point of view right now is that AI is going to be an accelerant over time. In some cases, the examples I gave to you already are happening.

Speaker #4: We saw that in a massive win. In fact, Onshape's largest win this ever was this quarter with a company called Winnebago where that's actually what has inspired them to move to Onshape.

Speaker #4: So we're seeing that within Arena, ServiceMax, Onshape, and now lastly in some of the things that we're doing with Windchill, CodeBeamer, and Creo. So we feel good about that over time, having scaled outcomes for our customers using AI.

Speaker #1: And our next question comes from the line of Andrew DeGasperi with BNP Paribas. Your line is open.

Speaker #4: We saw that in a massive win. In fact, Onshape's largest win ever was this quarter with a company called Winnebago, where that's actually what has inspired them to move to Onshape.

Speaker #5: Thanks for taking my question. I wanted to maybe follow up on the prepared remarks to discuss this large Q3 Windchill deal that was a competitive win.

Speaker #4: So we're seeing that within Arena, ServiceMax, Onshape, and now lastly in some of the things that we're doing with Windchill, Codebeamer, and Creo. So we feel good about that, over time, having scaled outcomes for our customers using AI.

Speaker #5: Just wanted to maybe understand is something changed in the market that has led you to win that deal? Maybe can you elaborate a little more what went behind that?

Speaker #5: Thank you.

Speaker #4: Sure. Happy to talk about it. So just as a matter of fact, the number of displacements or the aggregate value of displacements year over year has doubled at PTC.

Speaker #1: And our next question comes from the line of Andrew DeGasperi with BNP Paribas. Your line is open.

Speaker #5: Thanks for taking my question. I wanted to maybe follow up on your prepared remarks to discuss this large Q3 Windchill deal that was a competitive win.

Speaker #4: Which is indicative and shown in some of the customer slides that we said. But across the board, we're starting to win more customer displacements.

Speaker #4: And what's driving that, and in this example, is customers are realizing with the vertical expertise, with all the go-to-market transformation, the messaging, the product alignment, are realizing to take advantage of great technology like AI, but also to remain relevant in a geopolitical fraught world, supply chain risk, etc.

Speaker #5: Just wanted to maybe understand is something changed in the market that has led you to win that deal? Maybe can you elaborate a little more what went behind that?

Speaker #5: Thank you.

Speaker #4: Sure. Happy to talk about it. So just as a matter of fact, the number of displacements or the aggregate value of displacements year over year has doubled at PTC.

Speaker #4: They need to modernize their product data foundation and they're choosing PTC. We have the most advanced products. We have the most advanced AI roadmap.

Speaker #4: Which is indicative and shown in some of the customer slides that we said. But across the board, we're starting to win more customer displacement.

Speaker #4: And we've proven it across the verticals that we operate in with real depth. And our sales and marketing team are doing a much better job than 18 months ago showing that consistently.

Speaker #4: And that's why our customers are choosing to come with us, expand the portfolio with us. In some places, win new displacements across other products that are actually in their ecosystem that they want to consolidate onto PTC.

Speaker #4: They need to modernize their product data foundation and they're choosing PTC. We have the most advanced products. We have the most advanced AI roadmap.

Speaker #4: And that's what we saw in this specific example. But it's happening at scale now across the board.

Speaker #4: And we've proven it across the verticals that we operate in with real depth. And our sales and marketing team are doing a much better job than 18 months ago showing that consistently.

Speaker #1: And our next question comes from the line of Saket Kalia with Barclays. Your line is open.

Speaker #6: Okay, great. Hey guys, thanks for taking my questions here. Our question and a nice quarter. Neil, maybe for you, I want to pick up on the thread a little bit.

Speaker #4: And that's why our customers are choosing to come with us, expand their portfolio with us, and, in some cases, win new displacements across other products that are actually in their ecosystem that they want to consolidate onto PTC.

Speaker #6: Because it's super interesting as a trend to talk about PLM as sort of a system of record for AI for your customers. And maybe the question is, can you just talk about how urgent that conversation is becoming with customers?

Speaker #4: And that's what we saw in this specific example. But it's happening at scale now across the board.

Speaker #6: And as you think about sort of that multi-year opportunity, there's clearly opportunity to displace competitors, right? That's happening at an accelerated pace. But do you think you could also expand the TAM for PLM as well?

Speaker #1: And our next question comes from the line of Sakit Kalia with Barclays. Your line is open.

Speaker #6: Okay, great. Hey guys, thanks for taking my questions here. Or question. And a nice quarter. Neil, maybe for you, I want to pick up on the thread a little bit.

Speaker #6: Sorry, there's a lot there, but does that make sense?

Speaker #4: Yeah, Saket, thanks for the question. That's actually what we're starting to see, which is, again, go back to the strategy of the intelligent product lifecycle.

Speaker #4: Make sure a customer has the strongest product data foundation by which they could then layer on intelligence, in some cases, and in aggregate, AI, which is what we're doing in parallel.

Speaker #4: A part of our intelligent product lifecycle strategy is to make sure we democratize product data across the enterprise. Which if in effect increases TAM.

Speaker #6: Sorry, there's a lot there. Does that make sense?

Speaker #4: So as a case and example, PTC Jetstream, the product that we announced at PTC Next, which is live in beta right now and is getting released in the beginning of Q1 in GA of '27, that actually takes the incredible things that are derived from design and configurations from Creo and Windchill and propagates that to the supply chain, by which they could actually utilize that capability to have faster times by which companies that are deploying Jetstream could actually design, produce, and manufacture and service products.

Speaker #4: Yeah, Sakit, thanks for the question. That's actually what we're starting to see, which is, again, go back to the strategy of the intelligent product lifecycle.

Speaker #4: A part of our intelligent product lifecycle strategy is to make sure we democratize product data across the enterprise. Which, if in effect, increases TAM.

Speaker #4: So we're seeing that as one leverage point. The main thrust here in summary is that as we're getting the expansion of PLM, the modernization of PLM, the consolidation of PLM into the best-in-class PLM system in the world, which is Windchill, we're now being able to leverage things like Jetstream, leverage AI modules within Windchill to do more.

Speaker #4: Last point I'll make is Arena, which is our born-in-the-cloud PLM solution, is also doing the same thing. We have advanced our AI capabilities on Arena much faster and what we're seeing there is that there's a SCA, we call it supply chain intelligence within Arena, what it's doing is it's embedded into PLM, it's increasing the number of eyeballs and seats by which are needing PLM, consolidating other systems onto our system, but allowing an expansion of our capabilities in other parts of the organization that PTC never played in.

Speaker #4: The last point I'll make is Arena, which is our born-in-the-cloud PLM solution, is also doing the same thing. We have advanced our AI capabilities on Arena much faster, and what we're seeing there is that there's an SCA—we call it supply chain intelligence—within Arena. What it's doing is it's embedded into PLM, it's increasing the number of eyeballs and seats that are needing PLM, consolidating other systems onto our system, but also allowing an expansion of our capabilities into other parts of the organization that PTC never played in.

Speaker #4: So to your point, our energy, when we set forward with a strategy in summary of the intelligent product lifecycle to make PLM the pinnacle of the nerve center of what we're doing, is now allowed us to expand and create innovation AI as well as core capabilities to expand to other personas.

Speaker #4: And we're starting to do that. We're starting to see it. And we're very enthused about what that looks like.

Speaker #1: And our next question comes from the line of Ken Wong with Oppenheimer. Your line is open.

Speaker #2: Great. Thank you for taking my question. With the fiscal 3Q net new ARR at 60 million above prior 3Q levels, and the upper half of fiscal Q4, also above historical levels, Neil, when looking at the sales operations now, are we where you envision when you initially started the go-to-market changes?

Speaker #4: And we're starting to do that. We're starting to see it. And we're very enthused about what that looks like.

Speaker #2: Or are there still kind of more benefits to come?

Speaker #1: And our next question comes from the line of Ken Wong with Oppenheimer. Your line is open.

Speaker #4: So Ken, thanks for the question. Just to rewind the tape, to baseline where we are right now, where we're taking things. We started this transformation, as many of you followed us, 18 months ago.

Speaker #6: Great. Thank you for taking my question. With the fiscal Q3 net new ARR at $60 million, above prior Q3 levels, and the upper half of fiscal Q4 also above historical levels, Neil, when looking at the sales operations now, are we where you envisioned when you initially started the go-to-market changes?

Speaker #4: And we've talked about the progress and improvements over that time. It's the sustained level of execution. We've seen quite frankly over the last four quarters, since Q4 of last year, that gave Jen and I the confidence that assertively tell all of you, we've turned the corner.

Speaker #6: Or are there still, kind of, more benefits to come?

Speaker #4: And we're very proud of our Q3 performance because it really from what we are seeing solidified our go-to-market team having reached a new operating standard.

Speaker #4: So Ken, thanks for the question. Just to rewind the tape, to baseline where we are right now and where we're taking things—we started this transformation, as many of you have followed us, 18 months ago.

Speaker #4: Ken, we talked about the data points we've been watching over those 18 months. Rep productively, renewal rates, pipeline quality and diversity, velocity, displacements. They've all steadily improved.

Speaker #4: And we've talked about the progress and improvements over that time. The sustained level of execution, we've seen quite frankly over the last four quarters since Q4 of last year, that gave Jen and I the confidence that assertively tell all of you, we've turned the corner.

Speaker #4: And then you take the qualitative elements, which are in my opinion just as important, the deeper vertical expertise, executive level engagement. We are now in most of the deals talking to C-levels and CEOs.

Speaker #4: And we're very proud of our Q3 performance because it really from what we are seeing solidified our go-to-market team having reached a new operating standard.

Speaker #4: That didn't happen 18 months ago. That's happening now at scale. Cross-team collaboration, how we structure deals, for doing the right deals for PTC and the customer.

Speaker #4: And our enablement efforts are all making us and have made us stronger than they were at the start of the transformation. And these factors are influencing our deals as you're seeing now in the results.

Speaker #4: And then you take the qualitative elements, which are, in my opinion, just as important. The deeper vertical expertise, executive level engagement. We are now in most of the deals talking to C levels and CEOs.

Speaker #4: And so the summary of this is, we're not stopping there. We have turned the corner and we now have a new operating standard. We are showing it with real results.

Speaker #4: And we will continue to improve upon all those metrics that we talked about with the momentum now and the wind at our back.

Speaker #4: That didn't happen 18 months ago. That's happening now at scale. Cross-team collaboration, how we structure deals, for doing the right deals for PTC and the customer.

Speaker #1: And our next question comes from the line of Blair Abernethy with Rosenblatt Securities. Your line is open.

Speaker #5: Thanks very much. Neil, I just want to take the question back to AI. You've been adding a lot of product features in the last year or so, and obviously more coming.

Speaker #4: And so, the summary of this is: we're not stopping there. We have turned the corner, and we now have a new operating standard. We are showing it with real results.

Speaker #5: I just kind of wonder, how are your thoughts right now around monetizing some of these new features? I mean, a lot of it's going to be table stakes with competitors doing similar kinds of moves, but where do you see the biggest monetization opportunities for PTC?

Speaker #4: And we will continue to improve upon all those metrics that we talked about with the momentum now and the wind at our back.

Speaker #1: And our next question comes from the line of Blair Abernethy with Rosenblatt Securities. Your line is open.

Speaker #2: Sure, Blair. Just as two

Speaker #4: parts answer here. The first part, just a reiteration, the incredible thing about AI for PTC, the first element of success for us, is the acceleration and urgencies for our customers to actually get their house in order, meaning modernize their product data foundation with our core systems records.

Speaker #5: Thanks very much. Neil, I just want to take the question back to AI. You've been adding a lot of product features in the last year or so, and obviously more coming.

Speaker #4: So use more Windchill, use more Code Review, use more Onshape service max, et cetera. So that is the tailwind that we're seeing already. You're seeing in the results, we see it in every single customer conversation.

Speaker #6: Sure, Blair. Just as two

Speaker #4: parts answer here. The first part, just a reiteration, the incredible thing about AI for PTC, the first element of success for us, is the acceleration and urgencies es for our customers to actually get their house in order, meaning modernize their product data foundation with our core systems records.

Speaker #4: First and foremost around AI. Second is the embedded AI capability. So we've done that across and we've talked about this in the last call, we're doubling the number of AI embedded releases this year versus last year.

Speaker #4: Many of which are already on the field. Some examples that we gave are already in the script around last quarter we saw a global HVAC company accelerate and expand to near 7-figure digits and service max AI deal.

Speaker #4: So use more Windchill, use more Code Review, use more Onshape service packs, etc. So that is the tailwind that we're seeing already. You're seeing it in the results.

Speaker #4: We see it in every single customer conversation. First and foremost around AI. Second is the embedded AI capability. So we've done that across and we've talked about this in the last call.

Speaker #4: We have templatized that. And the next quarter, we want for a different company, a near 7-figure service max AI deal. And that pipeline is growing substantially.

Speaker #4: We're doubling the number of AI-embedded releases this year versus last year, many of which are already in the field. Some examples that we gave already in the script: around last quarter, we saw a global HVAC company accelerate and expand to near 7-figure digits in a Service Packs AI deal.

Speaker #4: On Arena, we talked about the supply chain intelligence. On every single one of the expansion opportunities, by the way, Arena's kicking getting some real momentum.

Speaker #4: That has also included the AI capabilities. And then lastly, as I mentioned on Onshape, that is actually inspiring API usage, monetization of API, et cetera.

Speaker #4: I will say though, in temperament of all that, while we're super excited about what AI is doing in the conversations, leading to monetization of the product data foundation and some of these highlights that we're making, our customers are very methodical.

Speaker #4: We have templatized that. And the next quarter, we want for a different company, a near 7-figure service packs AI deal. And that pipeline is growing substantially.

Speaker #4: On Arena, we talked about the supply chain intelligence. On every single one of the expansion opportunities, by the way, Arena's kicking getting some real momentum.

Speaker #4: They start with a pilot. They then move to, did the pilot actually create return on investment? Did it get adopted? And then they choose to scale.

Speaker #4: That has also included the AI capabilities. And then lastly, as I mentioned on Onshape, that is actually inspiring API usage, monetization of the API, etc.

Speaker #4: We've seen that happen in service max. We've seen that happen in Arena. Our view is that will happen across our environment. And so when we talk about the standalone AI monetization and summary to answer your question, Blair, we see that as medium to longer-term standalone economic opportunity.

Speaker #4: I will say though, in temperament of all that, while we're super excited about what AI is doing in the conversation, it's leading to monetization of the product data foundation and some of these highlights that we're making.

Speaker #4: Our customers are very methodical. They start with a pilot. They then move to, did the pilot actually create return on investment? Did it get adopted?

Speaker #4: And in parallel, allowing us to accelerate displacements and expansion with our product data foundation because they want to get to the AI end story with us in that medium to long-term time period.

Speaker #4: And then they choose to scale. We've seen that happen in service packs. We've seen that happen in Arena. Our view is that will happen across our environment.

Speaker #1: And our next question comes from the line of Jay Fleeschouwer with Griffin Securities. Your line is open.

Speaker #4: And so when we talk about the standalone AI monetization and summary to answer your question, Blair, we see that as medium to longer-term standalone economic opportunity.

Speaker #6: Thank you. Good evening. Neil, it's been very interesting to hear the repeated references this evening to displacement and modernization, especially displacement, since that was certainly something I wanted to ask about.

Speaker #6: But it does tie back to something else we've been hearing from your principal competitors. Siemens, at their conference the week before yours, spoke about displacement and their modernization.

Speaker #6: Last week, the sale on their call spoke about their architecture and what they think is going to prospectively be more displacement and churn over the next number of years.

Speaker #1: And our next question comes from the line of Jay Fleecehauer with Griffin Securities. Your line is open.

Speaker #3: Thank you. Good evening. Neil, it's been very interesting to hear the repeated references this evening to displacement and modernization—especially displacement, since that was certainly something I wanted to ask about.

Speaker #6: So at a time when all the principal vendors, including yourselves, are thinking in terms of engineering software musical chairs, how do you think about pipeline handicapping, pipeline management not becoming perhaps overly dependent on displacement or decommissioning opportunities?

Speaker #3: But it does tie back to something else we've been hearing from your principal competitors. Siemens, at their conference the week before yours, spoke about displacement and their modernization.

Speaker #3: Last week, the sale on their call spoke about their architecture and what they think is going to prospectively be more displacement and churn over the next number of years.

Speaker #6: And perhaps further distinguishing yourself with your multi-solution sales and the various two-letter acronyms that you have on offer?

Speaker #4: Yeah, Jay, thanks for the question. Let me be really clear. Expansion and greater monetization of these amazing customer relations we've built for the last 40 years is the predominance of how we're scaling the current business.

Speaker #3: So, at a time when all the principal vendors, including yourselves, are thinking in terms of engineering, software, and musical chairs, how do you think about pipeline handicapping and pipeline management not becoming perhaps overly dependent on displacement or decommissioning opportunities, and perhaps further distinguishing yourself with your multi-solution sales and the various two-letter acronyms that you have on offer?

Speaker #4: What I'm telling you is that the acceleration of displacements is happening faster this year than it did last year. And we are enthused by it.

Speaker #4: And we are pushing on it. As an example, Onshape is really accelerating the curve. Against some of the names you mentioned, and they're taking share.

Speaker #4: And they're going to keep taking share. And we're going to fuel that engine. It is differentiated. We're going to keep going. That doesn't take our eye off the ball, as you know, Jay, from building PTC Jetstream, which is an incremental TAM expansion for existing customers.

Speaker #4: What I'm telling you is that the acceleration of displacement is happening faster this year than it did last year. And we are enthused by it.

Speaker #4: Not just getting new customers, but actually delivering more value to our existing customers. So Jay, we have learned this, and that was a core part of my strategy when I came in.

Speaker #4: And we are pushing on it. As an example, Onshape is really accelerating the curve. Against some of the names you mentioned, and they're taking share.

Speaker #4: We're not taking our eye off the ball of the customers that have plenty of money to spend with a trusted advisor like us that need us to actually modernize their capabilities with PTC and while we're doing that, Jay, in those environments, we're taking share from other organizations.

Speaker #4: As an example, in the example that we gave in the script, it was a multi-cat environment. It was a multi-PLM environment. We were they did an RFP and they found out that we had the stronger capabilities to put it all together and we had a stronger AI roadmap that they believed that we could execute on versus marketing message.

Speaker #4: So Jay, we have learned this, and that was a core part of my strategy when I came in. We're not taking our eye off the ball of the customers that have plenty of money to spend with a trusted advisor like us that need us to actually modernize their capabilities with PTC and while we're doing that, Jay, in those environments, we're taking share from other organizations.

Speaker #4: So they've now consolidated their CAD estate on PTC. They've consolidated their CAD estate on Windchill. We call that also a displacement because we're taking share from others in the existing account.

Speaker #4: We're not taking our eye off that ball. There's no way.

Speaker #4: As an example, in the example that we gave in the script, it was a multi-CAT environment. It was a multi-PLM environment. They did an RFP and found out that we had the stronger capabilities to put it all together, and we had a stronger AI roadmap that they believed we could execute on, versus just a marketing message.

Speaker #1: And our next question comes from the line of Adam Borg with Stiefel. Your line is open.

Speaker #5: Awesome. And thanks so much for taking the question. Maybe for Neil, or Jen here. So just on capital allocation framework, clearly the organic focus and turning over all the stones and rocks from over a year ago is paying great dividends here.

Speaker #4: So they've now consolidated their CAD estate on PTC, they've consolidated their CAD estate on Windchill. We call that also a displacement because we're taking share from others in the existing account.

Speaker #5: So organic investing continues. And we also seen a lot of share buybacks, right? Accelerating that as well. And of course, the three legs, the third leg of the capital allocation tool is M&A, which you've been pretty quiet on.

Speaker #4: We're not taking our eye off that ball. There's no way.

Speaker #5: So as your organic flywheel continues, as the go-to-market machine matures, how are we thinking about M&A? Anything changed there? And just why not get back into some M&A here as everything seems to be firing?

Speaker #1: And our next question comes from the line of Adam Borg with Stiefel. Your line is open.

Speaker #5: Awesome, and thanks so much for taking the question. Maybe for Neil or Jen here—so, just on capital allocation framework, clearly the organic focus and turning over all the stones and rocks from over a year ago is paying great dividends here.

Speaker #5: Thanks so much.

Speaker #4: Sure. Let me start, Jen. You could add to this. I would say on the M&A framework, we continue to look at M&A that can accelerate the current roadmap.

Speaker #5: So organic investment continues, and we have also seen a lot of share buybacks, right? We're accelerating that as well. And of course, the third leg of the capital allocation tool is M&A.

Speaker #4: And we've done several. They're extremely small in nature, so they probably don't even register on your news headline, but they're enough for us to accelerate our capabilities in response to what we need to deliver as a roadmap.

Speaker #5: Which you've been pretty quiet on. So as your organic flywheel continues, as the go-to-market machine matures, how are we thinking about M&A? Anything change there?

Speaker #4: In fact, like a smaller one that we just did recently, allows a Windchill extension framework capability and technology that accelerates the ability for our customers to move from an on-premise situation with Windchill to a Windchill plus arrangement.

Speaker #5: And just, why not get back into some M&A here, as everything seems to be firing? Thanks so much.

Speaker #4: Sure. Let me start, Jen. You could add to this. I would say on the M&A framework, we continue to look at M&A that can accelerate the current roadmap.

Speaker #4: We continue to do those. We will continue to do those things in terms of what's important for our organic roadmap to accelerate that. I would say the big M&A that our capacity would allow us to do, we're very focused in on there's enough things to do here organically, with some of the smaller tuck-ins, to really gain a lot of customer value.

Speaker #4: And we've done several. They're extremely small in nature, so they probably don't even register on your news headlines, but they're enough for us to accelerate our capabilities in response to what we need to deliver as a roadmap.

Speaker #4: And that's how we see it currently. And if things change, we'll let you know, but that's our current position and how we think about the business.

Speaker #4: We continue to do those. We will continue to do those things in terms of what's important for our organic roadmap to accelerate that. I would say the big M&A that our capacity would allow us to do—we're very focused in on—there's enough things to do here organically, with some of the smaller tuck-ins, to really gain a lot of customer value.

Speaker #1: And our next question comes from the line of Siti Panigrahi, with Mizuho. Your line is open.

Speaker #6: Thanks. Most of my questions are asked, but one clarification, Jen. On your cash flow statement, there was a $50 million of outflow towards solar energy.

Speaker #6: Could investment just could you explain what this is and whether it represents kind of a recurring commitment into 2027?

Speaker #4: And that's how we see it currently. If things change, we'll let you know, but that's our current position and how we think about the business.

Speaker #2: Yeah, thanks for the question. We did make an investment to solar, as we think about extending our green footprint. And there will be over time, impact savings from a tax perspective over the medium term.

Speaker #1: And our next question comes from the line of Citi Panigrahi with Mizuho. Your line is open.

Speaker #3: Thanks. Most of my questions I already asked, but one clarification, Jen. On your cash flow statement, there was $50 million of outflow towards a solar energy equity investment.

Speaker #1: And our next question comes from the line of NASO9 with Barenberg, your line is open.

Speaker #3: Could you just explain what this is, and whether it represents a recurring commitment, or if it extends into 2027?

Speaker #7: Hello, hi. Thank you for taking my question. I suppose by all accounts, everything points to the fact that the best setup going into FY27 will be much better than a setup coming into FY26.

Speaker #2: Yeah, thanks for the question. We did make an investment in solar as we think about extending our green footprint. And there will be, over time, impact or savings from a tax perspective over the medium term.

Speaker #7: If we look at the deal pipelines, the larger deals that you've signed, the fact that the deferred revenue levels Q4 next year will be higher than this year.

Speaker #7: And of course, your AI product roadmap and features as well. I was wondering, is there anything that maybe we should be mindful of that could prevent this from happening?

Speaker #1: And our next question comes from the line of NASO9 with Barenberg. Your line is open.

Speaker #6: Hello. Hi. Thank you for taking my question. I suppose by all accounts, everything points to the fact that the best setup going into FY27 will be much better than a setup coming into FY26.

Speaker #7: Prevent FY27 to be as good as 2026, if not better? Thank you.

Speaker #4: Let me start. Look, we still have a few months left here to close out Q4. And we've been, as a reminder, very focused on making sure, as I mentioned in the go-to-market transition, structuring deals appropriately that's good for PTC, good for customers.

Speaker #6: If we look at the deal pipelines, the larger deals that you've signed, the fact that the deferred revenue levels in Q4 next year will be higher than this year.

Speaker #6: And of course, your AI product roadmap and features as well. I was wondering, is there anything that maybe we should be mindful of that could prevent this from happening?

Speaker #4: That's been building this deferred ARR, we talked about in the last call around how we see that on four straight quarters of real demand capture, how that's affecting deferred ARR.

Speaker #6: Prevent FY27 to be as good as 26, if not better? Thank you.

Speaker #4: That gives us a lot of energy as we think about subsequent years. But I'll tell you, in terms of what could be the risk there, we still have to execute.

Speaker #4: We have to close out this quarter. We have to continue to build on the momentum of the demand capture that we've seen for four straight quarters, make it a fifth quarter, deliver the ARR the way in which we are expecting and inspired by, and then make sure that as an organization, we're aligned to how do we continue to push on the new innovation?

Speaker #4: That's been building this deferred ARR. We talked about it in the last call—about how we see that on four straight quarters of real demand capture, and how that's affecting deferred ARR.

Speaker #4: How do we monetize that? How do we expand wallet share? What does that look like? All the enablement around it and the inspiration that we need to do the team, we're underway of doing that, but all those things need to happen to make sure that next year we are building on the accelerated momentum that we already know that we're heading into 2027 with.

Speaker #4: That gives us a lot of energy as we think about subsequent years. But I'll tell you, in terms of what could be the risk there, we still have to execute.

Speaker #4: We have to close out this quarter. We have to continue to build on the momentum of the demand capture that we've seen for four straight quarters, make it a fifth quarter, deliver the ARR the way in which we are expecting and inspired by, and then make sure that, as an organization, we're aligned to how we continue to push on the new innovation.

Speaker #1: And our next question comes from the line of Josh Tilton with Wolf Research. Your line is open.

Speaker #5: Hey guys, can you hear me?

Speaker #4: How do we monetize that? How do we expand wallet share? What does that look like? All the enablement around it, and the inspiration that we need to give the team—we're underway doing that. But all those things need to happen to make sure that next year we are building on the accelerated momentum that we already know we're heading into for 2027.

Speaker #4: Yep.

Speaker #5: Awesome. I've been bouncing around with a ton of prints tonight, so I apologize if you guys already addressed this. I'm just going to knock both my questions out kind of in one long stream of consciousness.

Speaker #5: But for me, I think what I'm trying to understand is what changed from last quarter to this quarter that we saw such an amazing level of outperformance?

Speaker #1: And our next question comes from the line of Josh Tilton with Wolfe Research. Your line is open.

Speaker #5: Congrats on, by the way. On the ARR figure, not just necessarily switching from no net new ARR growth to ARR growth, but what in the environment changed that let you guys outperform so much relative to the expectations that you set for us 90 days ago?

Speaker #5: Hey guys, can you hear me?

Speaker #4: Yep.

Speaker #5: Awesome. I've been bouncing around with a ton of prints tonight, so I apologize if you guys already addressed this. I'm just going to knock both my questions out, kind of in one long stream of consciousness.

Speaker #5: And then my follow-up is just, also a big congrats on the raise. But you guys are now calling for net new ARR growth in Q4.

Speaker #5: But from me, I think what I'm trying to understand is what changed from last quarter to this quarter that we saw such an amazing level of outperformance?

Speaker #5: Can you just talk to the confidence level you have on that implied Q4 net new ARR number versus kind of the confidence level you had going into this quarter?

Speaker #5: Congrats on that, by the way. On the ARR figure—not just necessarily switching from no net new ARR growth to ARR growth—but what in the environment changed that let you guys outperform so much relative to the expectations that you set for us 90 days ago?

Speaker #5: That would be great.

Speaker #2: Yeah, absolutely. So I'll start on the Q3 side of things. We were really pleased with two elements of the business performance. First, really strong demand capture.

Speaker #2: And then second, overall, our retention rates performed better than anticipated. And so both of those things really landed where we were able to outperform the high end of the guidance for Q3.

Speaker #5: And then my follow-up is just: also, a big congrats on the raise. But you guys are now calling for net new ARR growth in Q4.

Speaker #2: On the Q4 side of things, in terms of our confidence, right, what has changed is as we think about, I shared last quarter, right, first of all, it's our guidance is 99.5, so 9.25% in itself should signal we have strong confidence in being able to get there.

Speaker #5: Can you just talk to the confidence level you have on that implied Q4 net new ARR number versus kind of the confidence level you had going into this quarter?

Speaker #5: That would be great.

Speaker #2: Yeah, absolutely. So I'll start on the Q3 side of things. We were really pleased with two elements of the business performance. First, really strong demand capture.

Speaker #2: But the context I shared last quarter, was around our performance on net new ARR and deferred. And what I said was, if we perform on a similar basis for net new ARR, but the second half of this year versus last year, plus the deferred ARR, you'd feel comfortable getting to the midpoint.

Speaker #2: And then second, overall our retention rates performed better than anticipated. And so both of those things really landed where we were able to outperform the high end of the guidance for Q3.

Speaker #2: On the Q4 side of things, in terms of our confidence—right, what has changed is, as we think about what I shared last quarter—right?

Speaker #2: And now, of course, we've narrowed the guide, the low end of the guide, is higher than the midpoint. And that points to our pipeline visibility, continued strength and execution, and overall, our ability to deliver on the guidance.

Speaker #2: First of all, our guidance is 9 to 9 and a half, so 9.25% in itself should signal we have strong confidence in being able to get there.

Speaker #2: Neil, I don't know if you want to add anything else.

Speaker #4: I'd point three things on what we've seen. And we talked about this last quarter around we see demand capture. You all didn't see it in net new ARR.

Speaker #2: But the context that I shared last quarter was around our performance on net new ARR and deferred. And what I said was, if we perform on a similar basis for net new ARR, but in the second half, at this midpoint...

Speaker #4: We said it's coming now. And we also mentioned today about turn the corner. We've created now this go-to-market motion that's got this new offering standard.

Speaker #2: And now, of course, we've narrowed the guide. The low end of the guide is higher than the midpoint, and that points to our pipeline visibility, continued strength and execution, and overall our ability to deliver on the guidance.

Speaker #4: It's four quarters in a row of watching the progress of all the hard work we put in that transition actually show up. And that's been happening across quarters before this quarter.

Speaker #2: Neil, I don't know if you want to add anything else.

Speaker #4: It's now showing up. And as we talked about, we believe it's sustainable and will continue to improve upon that as we think about subsequent years.

Speaker #4: I'd point three things on what we've seen. And we talked about this last quarter around we see demand capture. You all didn't see it in net new ARR.

Speaker #4: So that's on the internal side. Second is, we made it tough decision on divesting an asset. And having that behind us versus in front of us or dealing with it has now opened up our focus to make sure that intelligent product lifecycle is 100% focused on the company.

Speaker #4: We said it's coming. It's coming now. And we also mentioned today about turning the corner. We've created now this go-to-market motion that's got this new offering standard.

Speaker #4: It's four quarters in a row of watching the progress of all the hard work we put in—that transition actually show up. And that's been happening across quarters before this quarter.

Speaker #4: That makes a difference. And the last piece is the customer environment. I believe we're seeing now an understanding from an end market that is highly sophisticated, that doesn't just look and listen to marketing talk and deploy new solutions.

Speaker #4: It’s now showing up. And as we talked about, we believe it’s sustainable and will continue to improve upon that as we think about subsequent years.

Speaker #4: It has to work because it's engineers. And the products have got to be manufactured and there has to be quality and regulatory and safety concerns with it.

Speaker #4: So that's on the internal side. Second is, we made a tough decision on divesting an asset. And having that behind us, versus in front of us or dealing with it, has now opened up our focus to make sure the intelligent product lifecycle is 100% focused on the company. That makes a difference.

Speaker #4: They have now understood to really get the value of AI, you need to actually do things before just deploying an AI solution. You need to put together the strong product data foundation, consistently and homogeneously across your industries and your groups.

Speaker #4: In the last piece, is the customer environment. I believe we're seeing now an understanding from an end market that is highly sophisticated, that doesn't just look and listen to marketing talk and deploy new solutions.

Speaker #4: You have to then in parallel do all the heavy lift of providing context and working with your AI partner to actually show value and adoption.

Speaker #4: It has to work because it's engineers. And the products have got to be manufactured, and there have to be quality, regulatory, and safety concerns with it.

Speaker #4: And those things are actually different even in the last 90 days on a reverberation back to PTC saying, you're a trusted advisor. You understand the context of our data.

Speaker #4: They have now understood that to really get the value of AI, you need to actually do things before just deploying an AI solution. You need to put together a strong product data foundation, consistently and homogeneously across your industries and your groups.

Speaker #4: It's flowing through your system of records. Help us build this so that we have real ROI versus a random buy of an AI product that doesn't work a quarter later.

Speaker #4: So that's a theme that we're seeing and inflecting coming back to us in terms of the conversations.

Speaker #4: You then have to, in parallel, do all the heavy lifting of providing context and working with your AI partner to actually show value and adoption.

Speaker #1: And our next question comes from the line of Tyler Radke with Siti. Your line is open.

Speaker #4: And those things are actually different, even in the last 90 days, on a reverberation back to PTC saying, "You're a trusted advisor. You understand the context of our data."

Speaker #5: Yeah, thank you for taking the question and nice job on the results and guidance here. Jen, appreciate the comments you made on sort of the early look at FY27 and the deferred ARR dynamics.

Speaker #4: It's flowing through your system of records. Help us build this so that we have real ROI, versus a random buy of an AI product that doesn't work a quarter later.

Speaker #5: Can you just remind us, as we look at your net new ARR for Q4, obviously, a nice step up versus a year ago, how much are you assuming for the deferred ARR contribution there?

Speaker #4: So that's a theme that we're seeing and inflecting, coming back to us in terms of the conversations.

Speaker #1: And our next question comes from the line of Tyler Radke with Citi. Your line is open.

Speaker #5: And then as we look at FY27, what is the expected deferred contribution versus the expected deferred contribution in FY26? I know you've given some stats in the past, but obviously, I'm sure things may have moved around a little bit.

Speaker #5: Yeah, thank you for taking the question, and nice job on the results and guidance here. Jen, I appreciate the comments you made on the early look at FY '27 and the deferred ARR dynamics.

Speaker #5: This quarter. Thank you.

Speaker #2: Sure. So first I'll say, as we continue to be really pleased with our ability to build deferred ARR both in Q4 and for FY27 and the future, I'm not going to give too much detail around the impact on Q4, but what I can tell you is, like I've said, it's a meaningful step up and we feel really confident about our visibility there.

Speaker #5: Can you just remind us, as we look at your net new ARR for Q4, obviously a nice step up versus a year ago, how much are you assuming for the deferred ARR contribution there?

Speaker #5: And then, as we look at FY27, what is the expected deferred contribution versus the expected deferred contribution in FY26? I know you've given some stats in the past, but obviously, I'm sure things may have moved around a little bit.

Speaker #2: And then as we think about '27, we have approximately two times the amount of deferred ARR that we had at this point last year for 2026.

Speaker #2: So it's meaningful.

Speaker #5: This quarter. Thank you.

Speaker #1: And our next question comes from the line of Andrew Oben with Bank of America. Your line is open.

Speaker #2: Sure. So first, I'll say, as we continue to be really pleased with our ability to build deferred ARR both in Q4 and for FY27 and the future, I'm not going to give too much detail around the impact on Q4. But what I can tell you is, like I've said, it's a meaningful step up, and we feel really confident about our visibility there.

Speaker #5: Yes, thanks for taking my call. Just a question on ARR by channel. It's 12.6 year over year, I think, versus direct 7.8%. And it's been like this every quarter.

Speaker #2: And then as we think about '27, we have approximately two times the amount of deferred ARR that we had at this point last year for 2026.

Speaker #5: The Cisco year. And just trying to understand, I think, the commentary you've sort of really talked about reinvestment in the direct channel. In the direct, but the channel is still growing faster.

Speaker #2: So it's meaningful.

Speaker #5: So when do we see the pickup? Does it flip next year? How should I think about this dynamic? Thank you very much.

Speaker #1: And our next question comes from the line of Andrew Oben with Bank of America. Your line is open.

Speaker #5: Yes, thanks for taking my call. Just a question on ARR by channel. It's 12.6% year over year, I think, versus direct at 7.8%. And it's been like this every quarter.

Speaker #2: Yeah, completely appreciate the question. As I've said kind of in the last couple of quarters around the mix between channel and direct, oftentimes the space is based on customer preference and how they want to consume and what channel they'll go through.

Speaker #5: The Cisco year. And just trying to understand, I think, the commentary—you've really talked about reinvestment in the direct channel. In the direct, but the channel is still growing faster.

Speaker #2: And in our largest deals, we often see both a direct and a channel partner. And so that's all you're seeing there. We continue to see really strong growth in our direct team actually, Neil talked about the all the productivity and the continued strong strength metrics that we're seeing from our go-to-market transformation.

Speaker #5: So when do we see the pickup? Does it flip next year? How should I think about this dynamic? Thank you very much.

Speaker #2: I would add that overall, the productivity of our sales team has increased just based on the amount of reps continuing to hit quota. At this point in the year, versus last year.

Speaker #2: So we're seeing that transformation take effect. And we're really pleased with the performance.

Speaker #2: And in our largest deals, we often see both a direct and a channel partner, and so that's all you're seeing there. We continue to see really strong growth in our direct team, actually. Neil talked about all the productivity and the continued strong strength metrics that we're seeing from our go-to-market transformation.

Speaker #1: And our final question comes from the line of Alexei Gogolev with JP Morgan Chase. Your line is open.

Speaker #6: Good evening. This is Ella on for Alexei. Thank you for taking our question. So we're curious, as organic product development becomes a greater focus for PTC, are you expecting to venture into completely new greenfield product areas?

Speaker #2: I would add that, overall, the productivity of our sales team has increased, just based on the number of reps continuing to hit quota at this point in the year versus last year.

Speaker #6: Or do you expect your new products to be closely connected to your existing product lines, like with PLM, ALM, SLM, and CAD?

Speaker #2: So we're seeing that transformation take effect, and we're really pleased with the performance.

Speaker #4: Yeah, thanks for the question. We have so much to do within executing our intelligent product lifecycle strategy, that includes all those core systems that you're talking about, the expansion, the displacement, the layering of AI capabilities, the layering of intelligence layer on it.

Speaker #1: And our final question comes from the line of Alexi Gogolev with JPMorgan Chase. Your line is open.

Speaker #6: Good evening. This is Ella on for Alexi. Thank you for taking our question. So, we're curious: as organic product development becomes a greater focus for PTC, are you expecting to venture into completely new, greenfield product areas?

Speaker #4: And then ultimately also moving all that product data to other personas as we talked about the supply chain, to manufacturing over time. Those are all core and we're experts at it.

Speaker #6: Or do you expect your new products to be closely connected to your existing product lines, like with PLM, ALM, SLM, and CAD?

Speaker #4: We have vertical expertise around it. We're now getting executive-level engagement on it. And there's plenty to do there. And we feel very good about the modernization across those vectors, focusing on that strategy to result in really good results.

Speaker #4: Yeah, thanks for the question. We have so much to do within executing our intelligent product lifecycle strategy. That includes all those core systems that you're talking about—the expansion, the displacement, the layering of AI capabilities, the layering of the intelligence layer on it.

Speaker #4: And we're proud of to show you here in Q3, but we're just getting started.

Speaker #1: And that concludes our question and answer session. I will now turn the conference back over to Mr. Neil Barua for closing remarks.

Speaker #4: And then ultimately, also moving all that product data to other personas as we talked about—the supply chain, to manufacturing over time. Those are all core, and we're experts at it.

Speaker #4: Thank you everyone for joining us and for your questions today. In the weeks ahead, we'll be participating in the Oppenheimer Technology Internet and Comms Conference, as well as the City Global TMT Conference.

Speaker #4: We have vertical expertise around it. We're now getting executive-level engagement on it, and there's plenty to do there. We feel very good about the monetization across those vectors, focusing on that strategy to deliver really good results.

Speaker #4: We look forward to seeing you then. Thank you.

Speaker #4: And we're proud to show you here in Q3, but we're just getting started.

Speaker #1: And that concludes our question and answer session. I will now turn the conference back over to Mr. Neil Barua for closing remarks.

Speaker #4: Thank you, everyone, for joining us and for your questions today. In the weeks ahead, we'll be participating in the Oppenheimer Technology, Internet and Comms Conference, as well as the Citi Global TMT Conference.

Speaker #4: We look forward to seeing you then. Thank you.

Q3 2026 PTC Inc Earnings Call

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