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his year, we've expanded our clear category leadership role in PLM, which has become a technology backbone for digital transformation and industrial company.
1 PLM
Transcript
2023 Q3
1 Aug 23
Assuming the current macro environment continues, I would not be surprised to see an ARR guidance set up similar to this year going into next year.
And much like this year, I would think that we would expect to deliver a free cash flow result within our previously guided fiscal 2024 range regardless of the ARR outcome for the year in macro environment will be more judicious with our spending and in a more favorable topline environment, we are likely to invest more in the business.
2024 commentary
Transcript
2023 Q3
1 Aug 23
So, now we're going to start guiding to both revenue and EPS on a quarterly basis.
The EPS ranges we're providing are aligned with our revenue guidance ranges, which appropriately allow for a broad range of outcomes given ASC 606-related dynamics.
For fiscal 2023, we've narrowed our revenue guidance range and primarily due to FX fluctuations, we lowered our revenue guidance midpoint by $5 million.
Our fiscal 2023 revenue guidance range is $2.09 billion to $2.12 billion and for Q4, we're guiding to $540 million to $570 million.
As a reminder, ASC 606 makes revenue fairly difficult to predict in the short term for on-premise subscription company.
More importantly, revenue does not influence ARR or cash generation as we typically bill customers annually upfront regardless of contract term length.
Moving on to EPS.
For fiscal 2023, we expect GAAP EPS of $2.14 to $2.45 and non-GAAP EPS of $4.07 to $4.38.
For Q4, our guidance range is $0.47 to $0.77 for GAAP and $0.95 to $1.25 for non-GAAP. Since revenue is impacted by ASC 606, it's important to remember that earnings per share is also impacted.
rev and eps guidance
Transcript
2023 Q3
1 Aug 23
For fiscal 2023, we expect constant currency ARR of $1.935 to $1.95 billion, which corresponds to constant currency ARR growth of 23% to 24%. We raised the low end of our guidance by $10 million, so the midpoint of our ARR guidance is up $5 million.
On cash flows, we are again raising our fiscal 2023 cash flow guidance. We're now targeting cash from operations of approximately $605 million and free cash flow of approximately $585 million.
guidance
Transcript
2023 Q3
1 Aug 23
On an organic constant currency basis, excluding ServiceMax, our ARR was $1.7 billion, up 14% year-over-year. In Q3, our as-reported ARR was $61 million higher than our constant currency ARR on a year-over-year basis, currency fluctuations were neutral to growth in Q3.
org constanct currency ARR up 14%
Transcript
2023 Q3
1 Aug 23
As Kristian and I have said previously, we expect our operating efficiency margin to expand to 40% by fiscal 2025 and expect we can get to mid-40s longer term.
mid and LT targets
Transcript
2023 Q3
1 Aug 23
Our largest offshore site is the PTC R&D center in India that will celebrate its 30th anniversary next year.
So, you can see we have an incredibly deep pool of talent and expertise there.
r & d in india
Transcript
2023 Q3
1 Aug 23
I'd first like to point out that fiscal 2023 will be the seventh consecutive year of double-digit ARR growth across good macro setups and bad. And indeed, ARR growth has generally been accelerating over that time as more of these growth drivers came into play.
I'd also point out that several of these drivers should be more impactful going forward, whereas none of them show signs of fading away. The sluggish macro, no doubt has cost us a small amount of growth here in fiscal 2023, but past history suggests we'll get it back when macro conditions improve.
Bottom-line is we feel very confident that PTC is positioned to deliver sustained double-digit ARR growth at or near the top of our peer group. Most importantly, please keep in mind that it is ARR, not revenue that drives free cash flow at PTC.
why ptc can kee[ growing at a mid-teens rate ARR
Transcript
2023 Q3
1 Aug 23
We saw the CAD and PLM markets beginning to pivot towards SaaS, which led us to acquire the peer SaaS Onshape and Arena businesses. These businesses continue to be growth tailwinds as the growth is accretive to PTC's overall growth rate.
Then in fiscal 2022, we decided to bring the SaaS phenomenon that was driving strong Onshape and Arena growth to our core CAD and PLM business, which we did using the Atlas platform that leveraged Onshape technology. This strategy allows us to land larger ARR run rates because we're selling both the software and the service to deliver it.
And of course, now we can expand the existing on-premise customer base ARR run rates by shifting customers to SaaS and upselling to include the value of the delivery service the customer now gets from PTC.
Frankly, this growth driver is in its early stages and its impact is minor right now compared to what it promises to contribute in the coming years. Because we already enjoy strong growth independent of this SaaS driver, you should consider that SaaS is not our growth strategy per se, it's just another tailwind that helps in our quest to drive our growth rates higher.
cad and plm mkt shifting towards saas
Transcript
2023 Q3
1 Aug 23
n 2015 when we launched the full-on transition from a perpetual and maintenance model to a subscription business model. This was a short-term pain for long-term gain type of strategy, and I'm pleased to say the pain bottomed out in fiscal 2017 and faded in fiscal 2019 and we've been enjoying the long-term gain and growth rate ever since.
perp license to sub license launched in 2015
Transcript
2023 Q3
1 Aug 23
Then back in fiscal 2014, we launched our IoT business, which will be more than $200 million of ARR this year and continuing to grow at a rate that's accretive to company growth.
IOT will be 200m of ARR in 2023
Transcript
2023 Q3
1 Aug 23
LM, which includes those products that enable data and process management, our ARR growth rate in Q3 was 36% and or 16% organic with the incremental inorganic growth coming from ServiceMax. In PLM, we continue to significantly outperform the market, which has been growing an estimated 8% in core PLL.
ARR growth for PLM in Q3 was primarily driven by Windchill, supplemented by strong organic percentage growth in ALM and SLM. Clearly, we're taking significant share in the PLM market as well.
PLM ahead of market and taking market share
Transcript
2023 Q3
1 Aug 23
In CAD, which is those products that enable authoring of product data, we delivered 11% ARR growth in Q3 in a market that's been growing an estimated 7%.
Within these results, the growth was primarily driven by Creo, but supplemented by strong percentage growth in Onshape.
PTC is clearly taking share in different parts of the CAD market with both products.
CAD-- ahead of the msrkts growth
Transcript
2023 Q3
1 Aug 23
As you know, we feel that ARR and free cash flow are the best metrics to assess the performance of our business.
In Q3, we exceeded our guidance on both metrics, and today, we are again raising our full year ARR guidance midpoint as well as our full year guidance for free cash flow.
arr ad fcf beat guidace and raused FY
Transcript
2023 Q3
1 Aug 23
As I had previously discussed it, much of the upside benefits of the SaaS pivot would come in fiscal 2024 and beyond. Many of you have asked why we wouldn’t invest more to get to that SaaS upside more quickly. Frankly, that was a good question and one that we've thought long and hard about. We even hired Mckinsey that help us think through it and develop a strategy. Today, I will explain how, thanks to the changes we're making.
We will invest substantially more in our SaaS initiatives while actually decreasing our overall run-rate spending projections significantly.
Let me hit the financial summary first on slide 16 and then explain the strategy and operational changes behind it.
In terms of the financial view or the restructuring, we're reducing our spending run rate by approximately 60 million compared to fiscal 2021 as we improve the efficiency of our organizational structure. We've also eliminated about 30 million of previously contemplated new spending run rate from our fiscal '22 plans.
So compared to the plan for fiscal '22 that existed prior to the restructuring, we now have -- we now expect to reduce our planned fiscal '22 run-rate spending by approximately $9 million and then reinvest about half of that into initiatives that accelerate our transition to SaaS with the other half falling to the bottom line. Key SaaS investments will be used to increase capacity on the Atlas, to accelerate work to adopt Atlas into our core products and to operate those products as SaaS and into Onshape than Arena product development and sales capacity. Despite what will be a very significant investment, we expect to expand cash margins by approximately 400 basis points in FY22.So we are accelerating both growth and margin expansion at the same time. Restructuring related cash outflows are expected to be approximately $50 million to $55 million with about 2/3 occurring in the first half of '22, and the majority of the remaining payments to be made in Q3. In other words, the restructuring will obscure the great cash flow progress for the next 2 or 3 quarters, but the benefits will start shining through after that. Already by Q4 of fiscal '22, we should be seeing a net free cash flow tailwind as a consequence of the restructuring. Then as Kristian will outline, fiscal '23 and beyond will look great.
Let's go to slide 17 and I will start by explaining why a SaaS pivot is so interesting to PTC. There are three reasons why we think now is the time for PTC to align with and invest more in the SaaS transition.
First the industrial software market wants to go to SaaS. COVID has greatly amplified the interest in SaaS. PTC is already the recognized SaaS leader in our industry. Onshape and Arena have proven what's possible and they've dramatically elevated PTC's credibility.
We are far ahead of competitors in terms of understanding what SaaS is and what it is not. Customers are looking for PTC to lead the whole industry through a transition to SaaS. We see the need to accelerate SaaS initiatives while better aligning with SaaS best practices in order to meet the needs of the market. The investments we're making now will allow us to play offense to capture the market demand.
Third, we believe our new SaaS strategy will accelerate a major growth driver for PTC. Giving us more pathways to mid-teens growth in the mid-term, and helping to de -risk our growth ambitions. Meanwhile, cost savings from the restructuring itself are expected to de -risk our free cash flow growth targets even if the growth should prove slower to materialize than I expect.
saas/cloud transition
Transcript
2021 Q4
1 Jun 23
Given the trends at PTC, we do not anticipate any need for the type of layoffs or restructuring that we've seen in the tech world around us.
Indeed, we're still hiring and investing in the business, albeit conservatively, which Kristian will discuss later.
no need for layioffs, instead hiring
Transcript
2023 Q2
16 May 23
We landed a large and interesting PLM and ALM order from a European automotive OEM that included extension options for Windchill and Codebeamer to contemplate our relationship spanning 20 years.
The fact that an automotive OEM wants to understand commercial terms over the next two decades, speaks to how sticky our software is. Clearly, they expect to have it for a while.
long term relationship
Transcript
2023 Q2
16 May 23
Despite the sluggish macro, the solid organic bookings result we saw in Q2 was up nicely on a sequential and year-over-year basis, suggesting at this point that the softer booking result in Q1 was probably an anomaly, within the normal range of bookings volatility rather than the beginning of a more sinister trend.
q1 bookings an "anomaly"
Transcript
2023 Q2
16 May 23
As you know, we feel that ARR and free cash flow are the best metrics to assess the performance of our business. We exceeded our guidance on both metrics in Q2 and are at the midpoint, raising the full year guidance for both metrics. A reminder that as usual, I'll focus my discussion on constant currency results when discussing top line metrics and Kristian will expound on currency effects later in the call.
arr and cash flow ahead of expectations, rasing guidance
Transcript
2023 Q2
16 May 23
First, we took up the bottom end of the 10% to 14% guidance range we provided on our Q4 earnings call, which excluded ServiceMax.
arr guifdane excluding service max
Transcript
2023 Q1
17 Feb 23