PTC Inc at Citi Global TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tyler Radke - Citi - Analyst : I thought you'd just kick off just on kind of the changes at PTC over the last year. Obviously, it's a company that is -- had a great legacy in the space. You recently hired Neil as CEO to replace Jim as he went on his retirement. But just give us a recap of the last year. What have been the biggest changes that you've seen as Neil has taken over the CEO role?

Question: Tyler Radke - Citi - Analyst : That's great. Yes. Well, look forward to the forward-looking statements.

Question: Tyler Radke - Citi - Analyst : And one of the changes that was announced most recently was sort of the, call it, elimination of the CRO role, Mike DiTullio, moved on to sort of be an adviser to Neil. So maybe a flatter kind of reporting structure. Walk us through the changes there. Is it, obviously, Neil has been spending a lot of time on the road meeting with customers. Is it, he wants kind of more of a hands-on approach in terms of managing the sales force directly or just walk us through kind of the thoughts find that change.

Question: Tyler Radke - Citi - Analyst : Yes. Got you. Shifting gears to what you're seeing out on the demand environment. The last couple of quarters, we've seen more macro pressure across the space. And in some ways, it's not new, right, deal cycles have been elongated for a while. But if you could just sort of compare and contrast what you're seeing at customers now versus the last two years? And then any thoughts in terms of how you're thinking about the business coming into your fiscal year-end?

Question: Tyler Radke - Citi - Analyst : Right. And one of the changes over the last couple of quarters was just sort of taking down medium-term targets down to low double digits ARR growth, which I think, many investors appreciate it, just it's kind of more of a realistic in view of what's going on in the macro environment. How do you sort of think about the sustainability of that double-digit growth? What are the levers for upside to that beyond just a macro improvement? Just walk us through sort of that decision and sort of what you're assuming in that -- those low double-digit targets.

Question: Tyler Radke - Citi - Analyst : Yes. And despite all the challenging macro time period, I mean, the free cash flow has been very resilient. You've been able to maintain that, if not raise that pretty much every quarter. Can you just talk about the levers that you have and what you're able to do to offset some of these macro headwinds and shortfalls on the top line?

Question: Tyler Radke - Citi - Analyst : Got it. That's helpful framing. And I think sort of helped show the consistency on cash flow. And I think given the quarterly guidance, not a lot of other companies are able to do that. Wanted to talk a little bit about the growth areas of the business, and you sort of laid out the five things that Neil is focused on. Couple of them, I would say, we didn't hear as much about years past, things like ALM, even SLM. So I wanted to talk a little bit about Codebeamer and some of the trends going on in that space. What has made that acquisition so successful? And where are you seeing the biggest growth opportunities for that product?

Question: Tyler Radke - Citi - Analyst : Got it. Got it. And then ServiceMax is also another growth area. Obviously, that's very close to Neil's heart, as a former CEO there. At the same time, ServiceMax is a bigger ticket item. And I'd imagine one that is maybe a bit more cyclical, at least in terms of how customers are prioritizing those budget decisions. So can you sort of talk about where ServiceMax growth is now and where could it ultimately go, should you execute and maybe macro cooperates?

Question: Tyler Radke - Citi - Analyst : Yes. And as you think about those five growth drivers you referenced earlier, is there a way to sort of rank order the biggest contributors to your net new ARR? I mean I imagine CAD and PLM, just given the scale of those businesses are still going to be the dominant drivers. But where are you sort of seeing the biggest pickup or at least as you look in the pipeline, where is kind of the strongest growth coming from in terms of these newer products?

Question: Tyler Radke - Citi - Analyst : Specificity. It's the tough one.

Question: Tyler Radke - Citi - Analyst : Yes. Got it. And the -- I think the last bucket in those five was this SaaS-ification strategy and, wanted to spend a little bit of time there. So I think, obviously, the history, there's been some acquisitions in the space, Onshape and Arena back in sort of Jim's tenure. I got the impression, I think some investors got the impression when Neil came in, not that SaaS took a backseat, but he really leaned into the opportunities he saw around REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 12:20PM, PTC.OQ - PTC Inc at Citi Global TMT Conference ServiceMax and Codebeamer. So maybe just talk about like, is there any more hesitancy that you've observed from customers in terms of this SaaS-ification push? Or is it still as big of a priority as it was maybe one year ago?

Question: Tyler Radke - Citi - Analyst : Got it. And I think in the past, you sort of talked about this S curve in terms of adoption for SaaS reaching 70% over 10 years. Is that still the right way to think about how you're thinking about this opportunity? Or any changes that you might make to that based on the trends you've seen over the last year?

Question: Tyler Radke - Citi - Analyst : Yes. So a common question we often get from investors is just look, PTC has been around for a while, CAD, PLM, relatively mature markets, yet you're posting really impressive growth. Those businesses have been growing pretty consistently in the double digits, especially PLM. Maybe we start on PLM but what would you attribute the strength in PLM to? There's been some discussion about PLM being in a renaissance, maybe some competitive changes to, if you could sort of help investors unpack what's been driving this higher-than-expected level of growth over the last few years? And is it sustainable?

Question: Tyler Radke - Citi - Analyst : Yes, that's a great way of putting it, kind of almost redefining or expanding the traditional definition of PLM. I'm curious how much you think though the competitive side is also playing into that because I think one of your peers across the Atlantic has made some changes in terms of some of the newer versions of their PLM products kind of closing off access to other ecosystem partners that perhaps has created some customer confusion and frustration. Have you noticed any changes to your win rates or share gains? And anything that you think could be helping you on the competitive front?

Question: Tyler Radke - Citi - Analyst : Right. Got it. On the -- I guess on the -- as you think about capital allocation, we talked about a number of the acquisitions the company has made between ServiceMax, Codebeamer, Onshape, Arena, how are you thinking about capital allocation from here between paying down debt, future M&A? What are areas that are interesting to you versus buyback or potentially a dividend?

Question: Tyler Radke - Citi - Analyst : Yes. Okay. In the last few minutes, I wanted to just get your perspective on how you're seeing the topic of generative AI play out across your customer base? What is PTC's strategy there? And how often is that coming up when you're talking to customers? And is that something that you're kind of at the front of the table, so to speak, in terms of having that strategic conversation?

Question: Tyler Radke - Citi - Analyst : And I guess on the other side of that, some software companies who've almost called out GenAI as a distraction or even a headwind to traditional IT budgets. Obviously, your customer base, it's the more cautious and conservative, not a kind of forward-leaning digital native customers or anything like that. Is that causing any distraction or reallocation of budgets as far as you can tell? Or is it sort of just a conversation but not anything negatively impacting the pool of spend that you're going after?

Question: Tyler Radke - Citi - Analyst : Great. Great. Well, Kristian, maybe in the last one minute or two, I'll just open it up to you if you had any closing comments or thoughts that you wanted to share with the audience but I appreciate you coming down.