PTC(PTC) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - At the end of Q2, the constant currency ARR was $2.075 billion, up 12$251 million and free cash flow was $247 million, both up 19$1.7 billion after paying down $256 million in Q2 [104] Business Line Data and Key Metrics Changes - In CAD, constant currency ARR growth was 11%, primarily driven by Creo [13] - In PLM, constant currency ARR growth was 13%, primarily driven by Windchill [13] - ServiceMax, acquired in Q2 of fiscal '23, is now included in organic ARR results, contributing to overall growth [12] Market Data and Key Metrics Changes - Organic ARR growth was solid across the Americas, Europe, and APAC, with growth in the low to mid double digits [103] - The company noted that the overall demand environment has been sluggish for several quarters, yet top-line resilience was observed [13] Company Strategy and Development Direction - The company is rebalancing resources in R&D to focus more on PLM, ALM, and SLM growth rather than standalone IoT and AR applications [4] - The five focus areas include PLM (Windchill), ALM (Codebeamer), SLM (ServiceMax), CAD (Creo), and SaaS [93] - The company aims to maintain a low cash balance while returning approximately 50% of free cash flow to shareholders via share repurchases in the future [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving cash flow targets despite a challenging selling environment [87] - The mid-term ARR growth target has been updated to low double digits, reflecting current market conditions [92] - Management emphasized the importance of digital transformation for customers and the necessity of advanced PLM systems [6] Other Important Information - The company is focusing on operational improvements and innovative ways to drive efficiency [10] - The diluted share count is expected to increase by approximately 1.5 million shares in fiscal '24, up from a previous expectation of 1 million shares [15] - The company is pausing share repurchases to focus on debt reduction following strategic acquisitions [14] Q&A Session Summary Question: Update on mid-term ARR growth outlook - The company updated its constant currency ARR guidance to 11% to 13% for the year, reflecting a more stable outlook [28] Question: Comments on capital deployment strategy and inorganic growth - Management indicated that while they are focused on organic growth, they remain open to tuck-in acquisitions if they align with strategic priorities [32] Question: Confidence in free cash flow targets amidst ARR changes - Management expressed confidence in hitting free cash flow targets despite changes in ARR expectations [34] Question: Insights on the selling environment and industry verticals - Management noted that the selling environment remains challenging, particularly for larger deals, but they are optimistic about their positioning in key verticals [123][125] Question: Integration of products and impact on business variability - Management highlighted the importance of integrating products across the portfolio to enhance customer retention and reduce business variability [134]