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s you're aware, our FY 2023 ARR guidance range, has from the start, contemplated the possibility of a potential macro downturn. In Q1, we saw further signs of a downturn in the form of incrementally softer bookings.
At the same time, we were comforted by strong renewals, which actually improved slightly year-over-year, reinforcing just how sticky our software is. The net impact of these softer bookings and stronger renewals was a slowdown of about 0.5 percentage point from last quarter's 16% ARR growth rate, taking the Q1 ARR growth rate down to about 15.5%.
slowdown but not as bad as anticipaed
Transcript
2023 Q1
10 Feb 23
Yes, thanks Angela.
So listen everybody, I’m sorry we didn’t give more time for questions today. We had a lot of content. We allowed Kristian to spend a little bit of time on an accounting lesson there, because you know we think people are going to ask the question, ‘how do you get a 35% free cash flow growth of flat revenue and flat margins?’ And the simple answer is revenues noise. Free cash flow at PTC is based on ARR and we have substantial increases in our free cash – you know our cash contribution margins against growing ARR.
rev noise, fcf strong
Transcript
2022 Q4
3 Nov 22
It’s a funny time, because you know on one hand you have the PMIs coming down and normally that slows down our bookings, but it hasn’t here. We certainly read the papers like the rest of you do, but we also have customers everywhere who can’t keep up with demand. I mean, we have a customer visit center here at PTC on the 17th floor, and it was completely packed today. We had six day-long meetings going on in parallel. We only have the capacity for six. I’m on the board of an automotive supplier and recently we were reviewing the IHS forecast, and IHS is forecasting the auto industry to grow 2% to 6% next year.
We’re a big supplier to the defense companies.
In fact, two of the companies that were here today were defense companies, and they can’t keep up with the volume and you know their customers are asking for more and more and more. I was in Europe last week and I visited a couple of clean energy companies, and again, because of what’s going on in the energy industry, whether it’s clean energy or not clean energy, there’s a lot of action happening.
You know people who used to ship gas through pipelines now need to ship it through ships and so that creates a whole bunch of new demand.
For example, big compressors that sit on ships, we have a customer who makes those. I visited a wind turbine company and they think their sales are going to triple over the next 10 years, because of their desire for clean energy. I went to a truck company, and they can’t keep up with demand for diesel trucks, meanwhile they have enormous demand for electric trucks, because all these e-commerce companies, Amazon, Target, whatever, really want their packages delivered in electric vehicles and so all these fleets are trying to move to electric.
So I’m just saying Steve, like there’s the headlines and then there’s everything else we see and the everything else really is quite encouraging. But we’re trying not to be Pollyanna; we’re trying to be aware of the headlines that could in fact impact us, so we tried to model it in.
end market colour
Transcript
2022 Q4
3 Nov 22
Churn is a key component of our ARR guidance and we significantly outperformed our churn guidance in fiscal ‘22 and ended the year with organic churn at 5.6% using our fiscal ‘22 plan rates.
Our medium term target as stated back in 2019 was to get to the 6% level by fiscal ‘24, and we achieved this earlier than expected.
Going forward, I think there’s still room to improve our churn rate, but at the same time I want to be cognizant of the macro environment, and that’s the rationale behind keeping our churn assumption essentially flat for fiscal ‘23.
churn rate details
Transcript
2022 Q4
3 Nov 22
Wrapping up my part then on slide 17, as I reflect on fiscal ‘22, demand remained strong all year, and we’ve seen only minor signs of a macro slowdown. Accelerating growth and expanding margins prove our strategy is working well, and strong execution has driven our top and bottom line performance to levels that are amongst the best across our industry peer group
no sign of slowdown yet
Transcript
2022 Q4
3 Nov 22
he takeaway is that just as surely as Dassault leads in CAD and ANSYS leads in simulation, PTC leads in PLM. Five consecutive years of PTC’s accelerating PLM growth demonstrates that PLM supports a very attractive growth rate
ptc leads in PLM
Transcript
2022 Q4
3 Nov 22
PTC is easily number one globally in terms of scale, ahead of number two Siemens and number three Dassault by some distance. Note that total PLM revenue at PTC is more than $1.1 billion when you include services, but being a software company we think it’s most appropriate to focus on software.
ahead of siemens and dassault
Transcript
2022 Q4
3 Nov 22
In the new model that same 10% to 14% company growth maps to CAD growing 8% to 10% and PLM growing 12% to 17%.
new model guidance
Transcript
2022 Q4
3 Nov 22
In the old IR segmentation model, we would have guided Digital Thread Core to grow 10% to 14%, Digital Thread Growth to grow 15% to 20%, FSG to grow 5% to 10% and Velocity to grow 20% to 25% in fiscal ‘23
old model guidance
Transcript
2022 Q4
3 Nov 22
aggregating product data in databases and managing the processes to interact with it across the product life cycle, then its Product Lifecycle Management or PLM.
plm definition
Transcript
2022 Q4
3 Nov 22
If we are referring to using a computer to aid in designing product information, then it is Computer Aided Design or CAD
CAD definition
Transcript
2022 Q4
3 Nov 22
At today’s foreign exchange rates, which are the most unfavorable in two decades, the $560 million of free cash flow in fiscal ‘23 includes a roughly $60 million headwind versus what the same free cash flow would be at given our fiscal ‘22 plan rates. The $560 million remains within the $550 million to $600 million free cash flow range we established back in 2019 when the world looked very different
fcf performance has been hit by FX
Transcript
2022 Q4
3 Nov 22
Velocity business on slide 10. Year-over-year ARR growth for the Velocity unit maintained the accelerated rate of 29% we saw last quarter, with Onshape and Arena again each growing multiple times faster than their respective market. Arena continues to mirror the PLM strength we see with Windchill and the mid-20s growth rate of Arena that we’ve seen throughout fiscal ‘22 is more than 10 percentage points higher than Arena’s pre-acquisition growth rate had been. Both Onshape and Arena have been great acquisitions for PTC.
Ve;lcity v strong
Transcript
2022 Q4
3 Nov 22
Digital Thread growth, which is IoT and AR, growth sustained the 19% ARR growth rate and we were just a smidgen short of rounding up to that two handle growth rate goal we were hoping for; close enough in my view. ThingWorx DPM had a decent quarter, including a nice expansion deal from a customer who first purchased DPM last quarter. FSG posted great results again in Q4, growing 9% organically and 19% inclusive of Codebeamer.
"growth" good but could be better
Transcript
2022 Q4
3 Nov 22
Digital Thread Core, we delivered another strong double-digit growth performance in Q4 with 14% ARR growth. Within this, CAD again grew low double digits, while PLM accelerated to 19% growth as Windchill continues to be a hot seller. Q4 represents the 20th consecutive quarter of double-digit ARR growth that we’ve seen in the Core CAD and PLM business
core v strong again
Transcript
2022 Q4
3 Nov 22
Q4 bookings were up 30% sequentially from the strong Q3 level, which reflects typical seasonality. Bookings growth was strong in both the Digital Thread and Velocity units
q4 bookings up sequentially on q3
Transcript
2022 Q4
3 Nov 22
want to reflect on the margin expansion initiatives we pursued over the past year, including both the restructuring related to our SaaS pivot announced a year ago, and the portfolio resource optimization we discussed on the last call. Both programs have proven very successful, because against the backdrop of a rocky economy we achieved about 3 percentage points of cash contribution margin expansion in fiscal ‘22, while simultaneously accelerating organic ARR growth rate by about 3 percentage points as well. That’s 6 points of expansion against our Rule of 40 type measure in a single year.
We expect the ongoing effect of these profitability initiatives to lead the further cash contribution margin expansion in fiscal ‘23.
With the restructuring costs behind us and cash contribution margins expanding on double digit ARR growth, we’re expecting to drive free cash flow up about 35% to the $560 million level in fiscal ‘23.
initiatives announced a year ago (SaaS pivot) have worked . FCF growth to improve
Transcript
2022 Q4
3 Nov 22
iscal ‘22 was the fifth consecutive year of double digit ARR growth for PTC. It was also the second consecutive year of 16% ARR growt
ARR growth
Transcript
2022 Q4
3 Nov 22
Despite churning the entire Russian business, churn was lowest in Europe for both Q4 and the full year
churn good despite russia churn
Transcript
2022 Q4
3 Nov 22
iscal ‘22 was PTC’s best year in decades.
best year in decades
Transcript
2022 Q4
3 Nov 22