82 annotations
So you mentioned on the call that the selling environment has been sluggish. Has this bottomed out? And any view on what needs to happen for a macro uplift in the software environment?
And also for an industrial guy, if you can point out which verticals are particularly weak, I would imagine maybe life sciences, ag, machinery, but just any color there.
Neil Barua
I'll start, Kristian, you could add. I don't see right now any change in the selling environment it's been tough going for at least 6 quarters now here at PTC. That didn't change in Q2 despite having solid results.
So the team continues to deliver despite a challenging selling environment. We look at every metric, GDP, PMI, you name it.
We have not seen a change yet given some maybe positivity, they have not turned into a trend.
I will say from a broad base outside of industries -- outside of specific industries, the point that I think we're trying to articulate is the challenging selling environment really is punctuated in the larger deals.
So these are the large digital transformation deals that are 7, 8 figure that I'm truly excited about seeing how the pipelines building on that. That continues to be challenged, the same by which it's been for the last 6-plus quarters around the large yield in getting those projects to be the key priority by which you could get the sign PO and begin implementation.
That's the area we continue to work through. To be clear, we continue to do well around securing those, but those are the areas by which the challenging selling environment really impacts us the most, and I don't see that changing right now in the current environment. Kristian, anything to add?
sluggish sales environment
Transcript
2024 Q2
6 May 24
Awesome. Maybe for Neil. Obviously, it's great to hear the strategy around the 5 focus areas. And just maybe drilling into the fifth area of SaaS. Maybe just an update on how Creo Plus, the Windchill Plus are resonating.
Obviously, we've talked about this being a decade-long journey. But maybe just give us an update on how these conversations are going and how we should think about that in the coming years.
Neil Barua
Sure. Great question. It is a priority.
We continue to build momentum there. we have not slowed down in terms of our approach, our customer conversations and our intensity to make sure we work through all the automation and back office elements to make the experience really great. .
We're working through a number of conversions where we're learning a lot and making sure we continue to sharpen our sword, so to speak, to make sure the next conversion happens more seamlessly.
As I mentioned, to reiterate, I see this as a 10-plus year journey.
We will do it hand-in-hand with customers so the experience is good.
So I think that's been working well.
We've also put out new releases of Windchill Plus specific to the med device sector, that has greater emphasis around compliance and regulatory issues that we've embedded into our product. We're looking forward to continued view of how that is received in the marketplace.
So we are not laying off the accelerator within our Plus strategy across even Creo. We're just -- we're putting out a release now, Creo Plus.
So we continue to invest into it.
Again, it will be a long journey.
As I mentioned, I view 10-plus years. It might happen earlier. We're building the rep, so to speak, to make sure that we're ready for at scale conversion into our Plus strategy, and we continue to invest our resources and attention on that front and feel progress is okay to good on that front over the last few quarters.
5 focus -- SAAS-- windchill+ and creo+
Transcript
2024 Q2
2 May 24
We're not abandoning IoT and AR. We're absolutely not abandoning those 2 areas. And I'll take AR first.
AR, we're not doing stand-alone applications, new product road map, expending resources for things that are discrete markets that have very little tied to our core systems.
So that -- those cost items and more importantly the focus will be built upon AR tools that actually make sense within our core systems like Windchill, ServiceMax, et cetera, versus stainalle applications, which has been the case for the last few years.
So we're stopping that. We're still going to support the current customers because that's important since they're part of the entire ecosystem and similarly in IoT, we'll make sure that we support what we've done in SCO, SCP.
but position that IoT strength that ThingWorx capability to enable Windchill expansion in the enterprise.
ar and iot to grow as functions of plm
Transcript
2024 Q2
2 May 24
will say from a broad base outside of industries -- outside of specific industries, the point that I think we're trying to articulate is the challenging selling environment really is punctuated in the larger deals.
So these are the large digital transformation deals that are 7, 8 figure that I'm truly excited about seeing how the pipelines building on that. That continues to be challenged, the same by which it's been for the last 6-plus quarters around the large yield in getting those projects to be the key priority by which you could get the sign PO and begin implementation.
big deals impacted by challeging sales environment
Transcript
2024 Q2
2 May 24
So when I took a look at how I want to put my stamp in a credible way around the company moving forward in the view of the midterm targets, I looked at all those variables. I also looked at the fact of the current conditions of the market and felt it was the appropriate thing to do to make the midterm target towards that low double digits versus have the mid-teens target out there.
why vut in midterm ARR guidance
Transcript
2024 Q2
2 May 24
Starting with our product groups in CAD, we delivered 11% constant currency ARR growth in Q2 and with the growth primarily driven by Creo. In PLM, our constant currency ARR growth was 13%, primarily driven by Windchill.
creo and windchill driving grwth
Transcript
2024 Q2
2 May 24
In the future, when their service technicians go into the field to service an elevator, they will know, using the ServiceMax application about the specific elevator so they bring the right parts to the work site. They will know the service history and have service instructions for that specific elevator. And of course, they'll be scheduled and routed efficiently to the job site.
Furthermore, the elevator business is highly regulated and the ServiceMax application will ease the regulatory compliance burden by having traceable records of the work performed during service calls. This is how ServiceMax helps our customers
slm example -- elevator
Transcript
2024 Q2
2 May 24
high-value long life cycle products.
slm for high vsalue long cycle products
Transcript
2024 Q2
2 May 24
providing the supply chain team with relevant product data earlier in the process enables any issues around component availability or component pricing to be identified earlier,
advantage of plm
Transcript
2024 Q2
2 May 24
Before standardizing on Windchill, this customer did not have an authoritative source of truth for their product data.
before windchill
Transcript
2024 Q2
2 May 24
o drive revenue growth, product companies have become increasingly focused on producing more variants of their products.
Mixing certain hardware configurations with other software configurations, while at the same time, compressing the time it takes to get new products to market
PLM drivers
Transcript
2024 Q2
2 May 24
5 focus areas include: number one, PLM, which has driven primarily by our Windchill product; number two, ALM, which is driven by our Codebeamer product; number three, SLM, which is primarily driven by ServiceMax, number four, CAD, which is driven primarily by Creo and lastly, number five, our continued focus on SaaS.
5 focus areas NOT IoT and AR
Transcript
2024 Q2
2 May 24
I'd like to address our midterm targets, which we have updated today.
To be clear, we are not changing our cash flow guidance. What we have updated is our midterm ARR growth targets.
We are now targeting constant currency ARR growth in the low double digits over the midterm, which is consistent with the performance we have delivered over the past 5 years through varying macroeconomic conditions.
In addition, we feel very good about our ability to hit our cash flow targets even while we appropriately reinvest into the business for product development. This is because we have a disciplined process to manage our internal spending based on the level of ARR growth we are seeing.
This year, as an example, our internal spend framework assumed 10% to 12% ARR growth.
changing mid-term ARR targets to low DD from mid-teens
Transcript
2024 Q2
2 May 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
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