PTC Inc at JPMorgan Global Technology, Media and Communications Conference Transcript

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

Question: Alexei Goglev - JP Morgan - Analyst : Of course. And first of all, Kristian, maybe we could start with some of the comments that Neil mentioned during the most recent earnings call and investor conversations. Obviously, there has been a strategic decision to be a bit more focused on what the customers are saying and you have lowered some of your ARR expectations. But can you talk about what preempted that decision and maybe tell us anything that is relevant with regards to deal sizes that you think these customers may be looking at in current environment, perhaps how they're feeling about certain parts of the economy and the sectors that they're exposed to?

Question: Alexei Goglev - JP Morgan - Analyst : And those conversations that you're referring to with some of your clients were they -- do you think the feedback was more broad-based? Or was it more customer-specific or maybe certain segment specific?

Question: Alexei Goglev - JP Morgan - Analyst : And then just to finish off with the guidance. You've already provided quite a bit of color on the estimates that you put in and assumptions that are made with that 7% to 9% range. But can you give us maybe a little bit more color, like in that extreme scenario that is hopefully unlikely the 7% growth of ARR -- what sort of assumptions are you making in terms of external factors, macro environment or maybe like some headwinds that you're assuming?

Question: Alexei Goglev - JP Morgan - Analyst : Okay. Great. And then obviously, the important takeaway, I feel is that the underlying demand for your core business based on those conversations that you had with clients, it still remains strong. And maybe you could provide some more indicators of the pipeline quality and velocity today versus perhaps the start of the year -- calendar year that you're seeing?

Question: Alexei Goglev - JP Morgan - Analyst : And if I could double-click on this verticalization of Salesforce, how can you think we track some of the progress that you've shown here? Any metrics that you would suggest we focus on to monitor -- beyond the $20 million that you mentioned and the changes in some hiring efforts. Anything you think we can track to see the progress here?

Question: Alexei Goglev - JP Morgan - Analyst : It is very impressive because obviously, one of the names we look at is ProCore, it's not really a competitor per se, but they do go to -- they're not going through a transformation right now and have seen some disruption. So it's quite impressive that you are not seeing that so far. Switching gears slightly in terms of kind of demand for your software. Obviously, software is increasingly more embedded in hardware these days. What sort of opportunity does this create for PTC and which product lines would benefit most?

Question: Alexei Goglev - JP Morgan - Analyst : Great. Kristian, how about the growth algorithm for PTC? How should we think about the new logos contribution versus cross-sell and upsell and what role do price increases play in that?

Question: Alexei Goglev - JP Morgan - Analyst : Understood. Obviously, you've been in this space for a very long time, leading positions. Can you update us what you're seeing in terms of competition in the US and in Europe and other international markets. Are you seeing any incremental changes and you are getting more aggressive in certain parts of the business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2025 / 8:20PM, PTC.OQ - PTC Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Alexei Goglev - JP Morgan - Analyst : I feel like on the most recent call, your team alluded to some competitive displacements among sizable accounts. What drove these displacements -- and how much of an opportunity is green shoots versus in-house systems or competitive displacements that you can follow through with?

Question: Alexei Goglev - JP Morgan - Analyst : Interesting. Switching gears to AI, PTC has begun to roll out AI SKUs across all of its products Service Max AI and a few others. So should we expect to see embedded AI agents across these products?

Question: Alexei Goglev - JP Morgan - Analyst : Okay. End of this calendar year. Very interesting. Also, in terms of your M&A strategy, you recently completed a small tuck-in with inquiry group. Can you provide a bit more color on that deal? And generally, how do you think about M&A in terms of capital allocation going forward?

Question: Alexei Goglev - JP Morgan - Analyst : Interesting. In terms of the guidance that you provided beyond ARR, can you give us a bit more color and thought process, what gives you the confidence that you'll be able to hit some of those new revenue metrics and specifically, the free cash flow metric and how does that guidance increase reconcile with an update of your ARR outlook?

Question: Alexei Goglev - JP Morgan - Analyst : Makes sense. And obviously, it's still very early to talk about '26. I realize that you haven't done the budgeting yet -- but do you feel comfortable suggesting that your free cash flow next year is likely to be higher than free cash flow this year. Is that fair?

Question: Alexei Goglev - JP Morgan - Analyst : Great. Maybe this is a good time to pull for questions. Anyone in the room? Unidentified Participant All right. Thank you. Just maybe structurally, I wanted to get your views on, if you look at the installed base of CAD and PLM seats within the DM auto OEMs and you compare that to where the installed base of CAD and PLM seats is within some of the Chinese automotive manufacturers, which is sort of I guess, tenth almost in terms of the numbers of seats. And maybe those are a little bit too low because the supply chain is particularly well penetrated with PLM. But do you -- how do you see that rebalancing over term, do you see Chinese OEMs in the automotive space scaling up their design capabilities as they expand variance? Or did you see the -- I guess, the developer the more legacy OEMs coming down? What are your thoughts around that sort of over the next five, 10 years, how that plays out?

Question: Alexei Goglev - JP Morgan - Analyst : Any more questions? If not, I have one more, Kristian. So obviously, you spoke about deleveraging. You've done extremely well last year and the last 12 months ratio down to 1.5 times. What is the near-term target that you feel is reasonable -- and how would that go versus your strategy to do more buybacks before you announced a pretty significant program last year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 14, 2025 / 8:20PM, PTC.OQ - PTC Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Alexei Goglev - JP Morgan - Analyst : Thank you very much, Kristian. Great to see you at our conference. Thank you for coming.