PTC Completes Kepware & ThingWorx Sale, Raises FY2026 Free Cash Flow View and Details Buybacks

Core Viewpoint - PTC has updated its fiscal 2026 free cash flow expectations following the divestiture of its Kepware and ThingWorx businesses, with a focus on utilizing the majority of free cash flow for share repurchases [1][4][5]. Financial Updates - Estimated net after-tax transaction proceeds from the divestiture are now $375 million, an increase of $10 million from the previous estimate of $365 million [1]. - Cash taxes related to the transaction are now expected to be approximately $110 million, down $15 million from the prior estimate of $125 million [2]. - Divestiture-related costs are now expected to be approximately $40 million, up $5 million from the prior estimate of $35 million [2]. - Transaction proceeds from the sale were $523 million, which is $2 million below the prior estimate of $525 million due to working capital and indebtedness adjustments [2]. Free Cash Flow Guidance - Post-divestiture free cash flow guidance for fiscal 2026 has been raised to $850 million, which is $10 million higher than the previous estimate of $840 million [5][6]. - Cash inflows from the transition services agreement (TSA) with TPG are expected to largely offset the absence of cash flow from Kepware and ThingWorx in fiscal 2026, but create an estimated $70 million free cash flow headwind in fiscal 2027 [5][7]. Capital Allocation - PTC intends to use the majority of its free cash flow for share repurchases, targeting total buybacks of $1.125 to $1.225 billion [4][12]. - The company is no longer including Kepware and ThingWorx in its guidance for annual recurring revenue (ARR) [8][9]. Tax and Operating Expenses - PTC expects its cash tax rate to migrate toward its GAAP P&L tax rate over the midterm, with fiscal 2026 cash taxes projected between $130 million to $150 million and fiscal 2027 cash taxes between $180 million to $220 million [10][16]. - Non-GAAP operating expenses are expected to grow at roughly half the rate of ARR, indicating ongoing efficiencies and potential reallocation of investment [11].