Summary of PTC FY Conference Call - August 13, 2025 Company Overview - **Company**: PTC (PTC) - **Event**: Oppenheimer Virtual Tech Conference - **Date**: August 13, 2025 Key Points Industry and Market Environment - The macro environment remains challenging but has not materially worsened, leading to a stable outlook for PTC [10][12][13] - There was initial caution among customers at the start of the quarter due to uncertainty surrounding "Liberation Day" [5][6] - PTC's revised guidance reflects a more stable outlook, with net new Annual Recurring Revenue (ARR) coming in at the high end of expectations [8][9] Financial Performance - PTC achieved near the high end of its guidance range for net new ARR, indicating alleviation of worst-case fears [8] - The company is on track to meet its $1 billion free cash flow target for the next fiscal year, despite currency and tax fluctuations [52][58] Go-to-Market Strategy - PTC has made significant changes to its go-to-market strategy, focusing on core verticals and aligning sales, marketing, and customer success teams [17][21] - The restructuring involved account reshuffling and hiring to optimize territory coverage [20][21] - Ongoing efforts include refining messaging for verticals and enhancing pipeline management [23][24] Product Development and AI Integration - PTC views Product Lifecycle Management (PLM) as a strategic imperative for customers, emphasizing the need for faster and more sophisticated product development [34] - The company is in the early stages of integrating AI into its products, with plans for broader AI capabilities to be rolled out in the near future [47][48] - Monetization strategies for AI are still being developed, with current offerings priced on a per-seat basis [50] Customer Engagement and SaaS Transition - There is growing customer interest in SaaS as a delivery model, although migration involves significant organizational change management [40][41] - PTC aims to balance the needs of existing on-premise customers while facilitating the transition to SaaS [42] Future Outlook - PTC is evaluating its growth profile in light of the current macro environment, with a focus on driving net new ARR growth through strategic initiatives [32][33] - The company plans to provide guidance for fiscal 2026 during the Q4 results announcement [59] Capital Allocation - PTC aims to operate in a net debt position and prioritize returning excess cash to shareholders through share repurchases [61] Additional Insights - The company is addressing elevated churn related to specific product lines and customer situations, with some contracts expected to return by the end of the year [35][36] - PTC is actively managing foreign exchange impacts and tax changes to mitigate financial headwinds [54][56] This summary encapsulates the key discussions and insights from the PTC conference call, highlighting the company's strategic direction, financial performance, and market positioning.

Core Viewpoint - PTC Inc. reported strong second-quarter fiscal 2025 results, with non-GAAP EPS of $1.79, exceeding estimates by 29.7%, and revenues of $636 million, up 6% year over year, driven by robust performance across key business areas despite a challenging environment [1][2]. Financial Performance - Non-GAAP EPS for the prior-year quarter was $1.46, indicating significant growth [1]. - Revenues of $636 million surpassed the consensus estimate by 4.6%, with management projecting revenues between $590 million and $620 million for the upcoming quarter [1][10]. - Recurring revenues reached $601.5 million, a 6.6% increase year over year [3]. - License revenues, accounting for 40% of total revenues, were $254.4 million, up 8.6% from the previous year [4]. - Support and cloud services revenues, making up 55.5% of total revenues, increased by 4.9% to $353 million [4]. - Professional services revenues decreased by 10.3% to $29 million, representing 4.5% of total revenues [4]. Product Group Performance - PLM revenues were $396 million, reflecting a 6% year-over-year increase, while CAD revenues were $240 million, up 5% year over year [5]. ARR Performance - Annualized recurring revenues (ARR) reached $2.29 billion, a 10% increase year over year, with constant currency ARR at $2.326 billion [6]. - PLM and CAD ARR were $1,429 million and $897 million, rising 11% and 8% year over year, respectively [6]. Operating Details - Total operating expenses decreased by 2.2% year over year to $306.6 million [7]. - Non-GAAP operating income rose by 17.8% year over year to $299.3 million, with an operating margin increase of 490 basis points to 47% [7]. Balance Sheet & Cash Flow - As of March 31, 2025, cash and cash equivalents were $235 million, up from $196 million as of December 31, 2024 [9]. - Total debt decreased to $1.39 billion from $1.544 billion [9]. - Cash provided by operating activities was $281 million, compared to $251 million in the prior-year quarter [9]. - Free cash flow increased to $279 million from $247 million year over year [9]. Future Guidance - For the third quarter of fiscal 2025, PTC estimates revenues between $560 million and $600 million, with non-GAAP EPS projected in the range of $1.05 to $1.30 [10]. - Full fiscal 2025 revenue projections are now between $2,445 million and $2,565 million, indicating a year-over-year rise of 6-12% [11]. - Non-GAAP EPS for fiscal 2025 is estimated to be between $5.80 and $6.55, suggesting a 14-29% increase [11]. - Cash from operations is projected to be between $855 million and $865 million, indicating a 14% to 15% year-over-year increase [12].

Financial Data and Key Metrics Changes - PTC reported a 10% year-over-year growth in Annual Recurring Revenue (ARR) and a 13% increase in free cash flow for Q2 [4][5][13] - The constant currency ARR at the end of Q2 was $2,326 million, reflecting a 10% increase year-over-year [13] - Free cash flow for Q2 was $279 million, which absorbed $3 million related to go-to-market realignment [14][16] Business Line Data and Key Metrics Changes - ARR growth was 8% in CAD, primarily driven by CREO, and 11% in PLM, driven by Windchill, CodeBeamer, and IoT [15] - The Americas saw a 9% ARR growth, Europe 11%, and Asia Pacific 10% year-over-year [15] Market Data and Key Metrics Changes - PTC's gross debt was $1,393 million, with a leverage ratio of 1.5 times [16] - The company paid down $500 million of senior notes due in February and reduced gross debt by $155 million in Q2 [16] Company Strategy and Development Direction - PTC's strategy focuses on deepening customer value through PLM, ALM, SLM, CAD, and SaaS, while leading innovation through applied generative AI [29] - The company is actively pursuing a go-to-market transformation to enhance execution and customer engagement [6][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged growing uncertainty related to global trade dynamics and macro pressures, which may affect customer buying behavior [9][10] - Despite the uncertainty, the long-term need for digital transformation remains strong, and PTC is well-positioned to support customers in this transition [12][30] Other Important Information - PTC continues to execute share buybacks under a $2 billion repurchase authorization, with $75 million used to repurchase shares in Q2 [5][16] - The company introduced several AI initiatives across its product lines, including Windchill AI and ServiceMax AI [8][53] Q&A Session Summary Question: Can you elaborate on the downside scenario for the 7% ARR growth? - Management explained that the 7% scenario considers potential delays and smaller deal sizes due to macroeconomic conditions, with a bottoms-up and tops-down assessment conducted [33][36][38] Question: What indicators show that the go-to-market changes are working? - The team reported low churn and successful execution of the vertical approach, which has improved customer engagement and pipeline quality [40][43] Question: How should investors think about the $1 billion free cash flow target next year? - Management indicated that it is premature to provide specifics, as various macroeconomic factors will influence the target [46][49] Question: How are customer discussions regarding AI adoption progressing? - Management noted increased customer engagement with AI products, emphasizing the importance of a solid product data foundation for effective AI utilization [52][54] Question: Are the conversations with customers indicating widespread deal postponements? - Management clarified that conversations vary by customer and vertical, with some customers moving forward while others may delay decisions [76][78] Question: What assumptions are behind the new ARR guidance range? - The guidance reflects a cautious outlook due to recent macroeconomic uncertainties, with the potential for improvement if trade issues are resolved [80][81]

Financial Data and Key Metrics Changes - PTC reported a 10% year-over-year growth in Annual Recurring Revenue (ARR) and a 13% increase in free cash flow for Q2 2025 [5][15] - The constant currency ARR at the end of Q2 was $2,326 million, reflecting a 10% increase year-over-year [15] - Free cash flow for Q2 was $279 million, which absorbed $3 million related to go-to-market realignment [16][17] Business Line Data and Key Metrics Changes - ARR growth was 8% in CAD, primarily driven by CREO, and 11% in PLM, driven by Windchill, CodeBeamer, and IoT [16] - The Americas saw a 9% growth in constant currency ARR, Europe 11%, and Asia Pacific 10% [16] Market Data and Key Metrics Changes - PTC's gross debt was $1,393 million, with a leverage ratio of 1.5 times [17] - The company paid down $500 million of senior notes due in February and reduced gross debt by $155 million in Q2 [17] Company Strategy and Development Direction - PTC's strategy focuses on deepening customer value through PLM, ALM, SLM, CAD, and SaaS, while leading innovation through applied generative AI [30] - The company is actively pursuing a go-to-market transformation to enhance execution and customer engagement [8][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged growing uncertainty related to global trade dynamics and macro pressures, which could affect customer buying behavior [10][11] - Despite the uncertainty, the long-term need for digital transformation remains strong, and PTC is well-positioned to support customers through this transition [12][13] Other Important Information - PTC continues to execute share buybacks under a $2 billion repurchase authorization, with $75 million used to repurchase shares in Q2 [17][18] - The company has raised the low end of its free cash flow guidance for 2025 to $840 million, reflecting strong execution and profitability focus [19] Q&A Session Summary Question: Could you dive deeper into the downside scenario for the 7% ARR? - Management explained that the 7% scenario assumes significant macro deterioration, with potential delays or downsizing of projects based on customer conversations [34][39] Question: What steps have been taken in the go-to-market strategy? - Management expressed confidence in the go-to-market transformation, highlighting low churn and successful retention of top talent [42][44] Question: How should we think about the $1 billion free cash flow target next year? - Management indicated that it is premature to provide specifics, as they need to assess various factors including interest rates and foreign exchange rates [46][48] Question: How are customer discussions regarding AI adoption progressing? - Management reported increased customer engagement regarding AI capabilities, with a belief that generative AI will drive future growth [52][54] Question: Is the macro uncertainty affecting specific products or verticals? - Management clarified that the uncertainty is not product-specific but relates to how customers are making investment decisions amid macroeconomic conditions [90][91]

Financial Performance - Q2'25 ARR as reported reached $2290 million, a 10% increase year-over-year[12] - Constant currency ARR at FY'25 Plan FX rates was $2326 million, also showing a 10% year-over-year growth[12] - Operating cash flow for Q2'25 was $281 million, a 12% increase compared to Q2'24[13] - Free cash flow for Q2'25 was $279 million, a 13% increase compared to Q2'24[13] Product and Geographic ARR - CAD ARR grew by 8% to $897 million on a constant currency basis[16] - PLM ARR grew by 11% to $1429 million on a constant currency basis[19] - Americas ARR grew by 9% to $1125 million on a constant currency basis[20] - Europe ARR grew by 11% to $861 million on a constant currency basis[21] - APAC ARR grew by 9% to $340 million on a constant currency basis[22] Balance Sheet and Capital Allocation - The company's gross debt was $1393 million with a weighted average interest rate of 52% as of Q2'25[24] - $155 million was used to pay down debt in Q2'25[26] - $75 million was used to repurchase shares of common stock in Q2'25[26] FY'25 Guidance - The company expects constant currency ARR growth of 7% to 9% for FY'25[27] - Free cash flow guidance for FY'25 is $840 million to $850 million[27]