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It's been a sluggish sales environment for a number of years now, particularly around the approval cycles of our customers. It's just taking a lot and it has been for multiple years. Nothing's changed worse or better since I've been here during the transition time and currently how we're looking at Q2.
environmengt same -- approval cycles
Transcript
2024 Q1
8 Feb 24
It's been a sluggish sales environment for a number of years now, particularly around the approval cycles of our customers. It's just taking a lot and it has been for multiple years. Nothing's changed worse or better since I've been here during the transition time and currently how we're looking at Q2.
environmengt same -- approval cycles
Transcript
2024 Q1
8 Feb 24
Although the manufacturing PMIs have indicated a sluggish overall demand environment for many quarters now, our top line has shown good resilience. Part of this is because of our subscription license model, our low churn rates and a propensity for our customer base to prioritize R&D investments through challenging times.
good arr growth in spite of weak demand growth
Transcript
2024 Q1
8 Feb 24
Another large value creation opportunity is cross-selling. PTC has done this successfully over the years, and we have additions to the portfolio that are meeting evolving customer needs and therefore present significant opportunities for PTC. One is ALM or application life cycle management, which is led by Codebeamer and is now augmented by our acquisition of pure::variants.
Here, we have the most modern and capable ALM solution in the market. Products now contain more embedded software than ever. And for many products, there's been an explosion in the number of unique software configurations that need to be developed and updated over time.
Codebeamer is a next-gen software development platform that enables industrial companies to manage this increasing level of complexity. pure::variants augments Codebeamer with industry-leading software variant management capabilities, which is a key differentiator.
While demand from the auto industry and its suppliers are a strong driver of ALM growth, demand for ALM tools is expanding in other verticals as well due to the trend towards software-driven products of all types. Clearly, this is an interesting growth opportunity, and we have been increasing our investments and focus in this area.
Our second cross-sell opportunity is ServiceMax. We acquired ServiceMax in January 2023 and the strategic fit with PTC is solid.
For many of our customers, growing the services business is their top priority.
crss selliing woth alm and slm
Transcript
2024 Q1
8 Feb 24
PLM systems have evolved to meet the complexities faced today by industrial manufacturing companies.
As just one example, the Volvo Group, whose Chief Digital Officer and Chief Technology Officer I was speaking to yesterday, uses Windchill to manage their platform product strategy, which leverages modular components. The sophisticated configuration management capabilities of Windchill have enabled the Volvo Group to produce more product variants while, at the same time, lowering their unique part count, which is good for the Volvo Group's top line as well as their bottom line.
Industrial companies have come to understand that their ERP systems are inadequate to handle these types of complexities. They now view their PLM systems as strategic and spending on PLM is in focus.
Secondly, industrial companies are facing competitive pressures and are looking for new ways to drive productivity and efficiency.
As they digitally transform, they also re-architect their workflows to streamline inefficiencies and drive collaboration with their manufacturing, quality and service operations.
Again, it is the PLM system that takes center stage as this happens because the PLM system is becoming the system of record for product data. And that makes the PLM system the epicenter for digital transformation of product companies. Increasingly, PLM systems are being leveraged as the backbone for sharing product data across departments as well as with design and supply chain partners. This is good news for PTC. The market is coming to us where we are strong
plm is the key focus of spending
Transcript
2024 Q1
8 Feb 24
reat to see the continued double-digit growth in ARR continue into next year and beyond that. Maybe the question is can you just talk a little bit about your level of visibility here? I know we've talked about ramp deals in the past. And I think you mentioned something on deferred ARR. Maybe going one level deeper into sort of the level of visibility or comfort that you have as you look out to '24, which is clearly another sort of uncertain year of macro.
Kristian Talvitie
Yes. I mean, again, I think we have a pretty good level of visibility. A lot of our contracts are multiyear contracts.
So you don't -- they're not actually even coming up for renewal in fiscal '24.
You have some portion that's coming up for renewal. But again, our retention rates at this point are already quite high. And then also, as you point out, we do have deferred ARR, we've had obviously deferred ARR for many years. But we have that, which also provides more incremental visibility .
why arr can keep growing
Transcript
2023 Q4
6 Nov 23
That being said, one thing's important here in my upfront here that I mentioned, the overall growth drivers of our ARR has very little right now, and quite frankly, into '24 to do with SaaS.
arr growth, v little to do with SAAS
Transcript
2023 Q4
6 Nov 23
Just if I could. In the fourth quarter, we actually did transactions with 5 auto OEMs. The big one with Volkswagen and then smaller, in some cases, put into [ sort ] type transactions with other global OEMs. And at least 3 of those, we have no meaningful CAD, PLM or ALM business with prior to this Codebeamer win.
So I mean, certainly, we can upsell from the ALM position we had and sometimes from the PLM position. But what's really exciting is that we're knocking down big name new logos that we have no previous relationship with.
strong oem auto deaks un ALM
Transcript
2023 Q4
6 Nov 23
Great. Kind of a follow-up on the Codebeamer strength, this momentum that we're seeing. And then with the Volvo deal, I don't know if any of us really knew what PTC was doing in ALM 2 or 3 years ago.
So when I think about the Codebeamer pipeline and the ALM strength, how much of this is maybe from existing customers looking to upgrade existing legacy ALM products? Versus wins and displacements of other tools versus customers who may not even have an ALM product for, if that makes sense?
Neil Barua
Yes.
Let me take the front end of this. Thanks for the question. We indicated in a press release a large strategic relationship with Volkswagen across their entire enterprise where we are deploying code beamer to their enterprise users for all the use cases that we talked about.
VOLKSWAGEN deal
Transcript
2023 Q4
6 Nov 23
Let's take a quick look at how we did against our initial guidance for the year. Summarizing our fiscal '23 financial results. In a challenging market environment, we executed well in all 4 quarters and consistently delivered solid top and bottom line growth. With that, let me move on to fiscal '24 guidance.
acrual vs initial fy guidance
Transcript
2023 Q4
6 Nov 23
We expect to use substantially all of our free cash flow to pay down our debt this year and end the year with gross debt of approximately $1.7 billion. We've paused our share repurchase program, and we expect our diluted share count to increase by approximately 1 million shares in fiscal '24. Heading into fiscal '25, we'll revisit the prioritization of debt repay down -- of debt pay down and share repurchases.
capital allocation-- paying down debtr, so share count will increase
Transcript
2023 Q4
6 Nov 23
The majority of our collections occur in the first half of our fiscal year and Q4 is our lowest cash flow generation quarter. And on an annual basis, free cash flow is primarily a function of ARR rather than revenue. Q4 revenue of $547 million increased $39 million or 8% year-over-year and was up 6% on a constant currency basis.
fcf cadence
Transcript
2023 Q4
6 Nov 23
As you will hear from Kristian, for fiscal '26, we are targeting ARR growth in the mid-teens and free cash flow of approximately $1 billion. If there is one takeaway from my comments today, it should be that I am singularly focused on leading PTC to execute to its full potential.
$1bn in 2026
Transcript
2023 Q4
6 Nov 23
In PLM, our ARR growth rate in Q4 was 34% or 15% organic with the incremental inorganic growth coming from ServiceMax. ARR growth in Q4 was primarily driven by Windchill, but supplemented by strong organic growth in ALM, thanks to Codebeamer.
plm 15%
Transcript
2023 Q4
6 Nov 23
We've been taking significant share in the PLM market and are well positioned going forward with our strength in core PLM with Windchill Arena, complemented by strong positions in the faster-growing ALM and SLM parts of the market. Wrapping up my comments then.
taking mkt sgare in plm
Transcript
2023 Q4
6 Nov 23
Next, let's look at ARR performance of our product groups on Slide 7. In CAD, we delivered 10% ARR growth in Q4.
cad 10%
Transcript
2023 Q4
6 Nov 23
Remember that ARR is the primary driver of cash flow.
ARR drives fcf
Transcript
2023 Q4
6 Nov 23
Within this context, the portion of business that we signed in Q4, but that did not start in Q4 or fiscal '23 was greater than we had modeled. Since ARR only kicks in when the subscription starts, Q4 ARR was $8 million lower than we had modeled, while deferred ARR is consequently $8 million higher. With this influx, our total deferred ARR is now $20 million higher than it was at the beginning of fiscal '23. Kristian will explain that because of this added strength in deferred ARR, we are now guiding ARR to grow 11% to 14% in fiscal '24, higher than the 10% to 14% growth range we discussed previously.
ARR 2024 guidance hike
Transcript
2023 Q4
6 Nov 23
Despite a challenging economy, we delivered a seventh consecutive year of double-digit top line growth with ARR growing 23%, 13% organically and revenue crossing the $2 billion threshold. And on the bottom line, we delivered 41% growth in free cash flow. This performance is a great stepping off point for me as I hand the reins of the company to Neil Barua going forward.
arr up 13% yoy
Transcript
2023 Q4
6 Nov 23
For fiscal '24, we expect constant currency ARR to grow from $1.979 billion to $2.19 billion to $2.25 billion, which corresponds to growth of 11% to 14%.
2024 ARR guide
Transcript
2023 Q4
3 Nov 23