PTC's Chief Executive Officer, Jim Heppelmann, discusses the company's operating results and provides guidance for the future. He mentions that the company will be discussing non-GAAP financial measures and that the transition process for a new CEO, Neil, has been going smoothly. Heppelmann expresses confidence in Neil's ability to lead the company.

The speaker, Neil Barua, is the new CEO of PTC and is confident in the company's strategy and leadership team. He will focus on three topics in his remarks: what he has learned about PTC, the drivers of the company's growth, and creating value through disciplined execution. He thanks the previous CEO, Jim, for his guidance and acknowledges the company's strong portfolio and team. Neil's main focus is on maintaining the company's momentum and helping customers with their digital transformation. He has observed that digital transformation is now a crucial aspect for industrial companies to remain competitive.

The author discusses the need for customers to modernize their operations and how PTC's core products play an essential role in that process. They also mention that industrial companies are starting to leverage product data more effectively and that PTC's broad portfolio allows them to help customers regardless of economic cycles. The author also praises the strength and capabilities of the PTC team and their collaborative approach to driving value for the company. They also mention a framework that shows the cumulative drivers supporting PTC's top line growth, which is expected to continue for the next fiscal year.

PTC's comprehensive product portfolio sets them apart from competitors and allows them to drive value for customers in all stages of the product lifecycle. This has contributed to their strong free cash flow growth, which is a result of their subscription license business model and operational discipline. PTC's focus and discipline in resource allocation will allow them to prioritize their highest ROI opportunities and expand their PLM footprint at customers. This is driven by the increasing demand for digital transformation and the need for a comprehensive solution that covers engineering, manufacturing, quality, and service.

PLM systems have evolved to meet the complexities faced by industrial manufacturing companies, such as the Volvo Group using Windchill for their platform product strategy. These systems are seen as strategic and are receiving more focus and investment. As companies digitally transform and rearchitect workflows, the PLM system becomes the system of record for product data and the epicenter for digital transformation. This presents opportunities for PTC, such as cross-selling and the addition of ALM through the acquisition of Pure variants.

PTC has a modern and capable ALM solution, Codebeamer, which helps manage the increasing complexity of products with embedded software. The recent acquisition of ServiceMax, a system for managing high value assets in the field, enhances PTC's SLM portfolio and provides cross-sell opportunities. The demand for ALM tools is growing in various industries and PTC has aligned their sales teams to capitalize on this opportunity.

The company is experiencing growth, but it will take time due to long sales cycles. Converting customers to SaaS and focusing on core business will lead to continued growth. The company wants to ensure a smooth transition to SaaS and values customer satisfaction and credibility. The new CEO is excited about the company's potential for sustainable growth and is focused on maximizing value for customers and shareholders.

PTC plans to host an Investor Day to share more about their long-term opportunities. They are working towards consistent messaging and prioritizing their time and resources. The company had solid financial results in Q1, with 23% constant currency ARR growth and $187 million in operating cash flow. They continue to invest in key priorities such as ALM and SaaS.

Despite the volatile FX and challenging selling environment, the company saw solid constant currency organic ARR growth in the Americas, Europe, and APAC in Q1. APAC had a 14% growth, while the Americas and Europe had comparable growth to Q4. In terms of product groups, CAD had 10% growth, driven by Creo, while PLM had 33% growth, with 19 points from ServiceMax. The company's subscription license model, low churn rates, and customer focus on R&D investments have helped maintain a strong topline despite sluggish demand. The company ended Q1 with $265 million in cash and aims to maintain a low cash balance and reduce debt. Gross debt decreased by $55 million in Q1.

In the first quarter of fiscal year 2024, the company used $181 million in cash to pay down debt, partially offset by $96 million related to acquisitions and interest payments. They plan to continue prioritizing debt paydown for the remainder of the year and expect to end with gross debt of $1.7 billion. The share repurchase program has been paused for now, but they plan to revisit it in fiscal year 2025. The company is maintaining their fiscal year 2024 guidance and expects to deliver solid results. For the second quarter, they are guiding for a constant currency ARR growth of 11% to 12% and free cash flow of approximately $240 million.

PTC is providing revenue and EPS guidance, but due to ASC 606, these metrics are difficult to predict. They believe ARR and free cash flow are better metrics to assess performance. They have maintained consistent billing practices and primarily bill annually. An illustrative model shows that $41 million of sequential net ARR growth is needed to hit the midpoint of their Q2 guidance range. They believe their guidance is prudent due to a sluggish selling environment. Looking at the full-year perspective removes quarterly volatility.

The speaker discusses the current sales environment, stating that it remains challenging and sluggish. They mention that this has been the case for a number of years and there has been no change in the past 90 days. They do not expect any significant changes in the near future.

Neil Barua and Kristian Gath, executives at ServiceMax, discuss the company's expected growth in net new ARR in the second half of the fiscal year. They are confident in this growth based on the pipeline of opportunities and their historical success in closing deals in the second half. They also mention their progress in aligning the go-to-market for cross-selling ServiceMax and give a timeline for the expected success in fiscal years 2024 and 2025.

Neil Barua, CEO of PTC, was asked about the timeline for ServiceMax, a company recently acquired by PTC, to reach its full potential in terms of reaching existing customers. Barua explained that the first year was focused on integration and getting familiar with the ServiceMax team, but they have now implemented a more direct selling process that has created momentum and interest from customers. Barua expects this year to be a building block for ServiceMax's growth, with subsequent years seeing sustainable mid-teens growth.

PTC's Creo CAD has shown strong growth in ARR, and CEO Neil Barua believes this will continue due to the product's differentiation and strength. He also notes that Creo+ will have little impact on Creo's results in the near to medium term, as the SaaS journey is a long-term process. Kristian Talvitie, CFO, adds that PTC will continue to focus on increasing contract length and that churn rate remains low and steady. The average contract length is currently around two years.

Matt Hedberg congratulates Jim and Neil on their transition and asks about the company's focus on SaaS and the plus variants of Creo and Windchill. Neil explains that they believe SaaS is the future and are already building momentum with customers in this area. They are not slowing down their investment in the plus strategy.

Neil Barua emphasizes the importance of focusing on the highest priority areas, including PLM, SLM, ALM, CAD, and transitioning customers to SaaS. While IoT, AR, Servigistics Arbortext, FlexPLM, and other products are also important, they are not the main focus at this time. These products are still being led by capable leaders and are important for industrial manufacturers' digital transformation.

The speaker discusses the company's approach to prioritizing and focusing on high-value creation opportunities during the planning process. They mention making concise decisions about where to allocate investment dollars and potentially de-prioritizing certain areas based on their outlook. The speaker also mentions a broad portfolio and consistent efforts to place incremental dollars in high-value opportunities. In response to a follow-up question, the speaker clarifies that there has been no change in their OpEx guidance, but they are investing in areas such as ALM and SaaS.

Joe Vruwink asks about the performance of new ARR and the factors that may have contributed to the upside in the first quarter. Kristian Talvitie responds by saying that despite a challenging environment, they executed well and maintained their full-year guidance. He also mentions the potential for volatility in ARR, but feels good about their cash flow guidance. The next question comes from Tyler Radke, who congratulates Neil and Jim and asks about Neil's observations on the product portfolio during his time with the company.

The speaker is discussing the SaaS transition and how it is a 10-year journey for PTC. They also mention the solid growth of their on-premise business, specifically in PLM and ALM, which gives them confidence in their initiatives. They clarify that their Creo on-premise business is also performing well.

Neil Barua discusses how the combination of three factors, including the ServiceMax cross-sell and the transition to SaaS, gives confidence in the company's mid and long-term guidance. He also mentions that the industry and customers will take time to fully transition to SaaS, but the company is already seeing some customers make the switch. Kristian Talvitie compliments Barua's explanation and confirms that there are no changes to the medium- or long-term targets. The next question is about partnerships, specifically the potential impact of Synopsys' acquisition of Ansys on their existing partnership. Barua reassures that Ansys will continue to be a good partner and plays a role in the company's value proposition for Creo and simulation capabilities.

The speaker discusses the partnership between Synopsys and Ansys, and how there is no overlap between the two companies. They also mention the impact of China on their business and how they have not seen any negative effects. The speaker also compliments the new boss and addresses a question about costs and ARR.

The speaker discusses the relationship between ARR and cash flow, explaining that any incremental ARR in a quarter will not impact that quarter's cash collections and will instead go towards the subsequent quarter. They also mention that 58% of the year's cash flow will come in the first half, which is slightly more front-end loaded than previously stated.

The speaker discusses the success of their collections performance in Q1 and their solid outlook for Q2. They also mention their closed-loop life cycle strategy and cross-selling structure, noting that customers in industries with long life cycle assets and those using Windchill are more receptive to their cross-selling approach. They also mention a recent large industrial manufacturing win that was previously attempted for five years.

The speaker talks about a recent deal they were able to secure because the customer had both Creo and Windchill. They also mention the potential for cross-selling Codebeamer to automotive suppliers who may also be interested in PTC's PLM system. The speaker also mentions that Creo and Windchill have been gaining market share and that there may be some changes in customer requirements or selection criteria in the future.

PTC is seeing success with their prioritization of expanding their PLM system, Windchill, as customers are reevaluating workflows during ERP migrations. This has made Windchill more important in the transition process and PTC is feeling advantaged. They also see a trend of customers valuing a broad portfolio, including Windchill, for a common data flow. On the other hand, competitors have lost momentum and PTC's European competitor's unhappy customers benefit PTC.

The speaker discusses the current momentum of the business and the effects of recent price increases. They express confidence in the steady growth of the business and the potential for Creo and Onshape to gain market share. The questioner congratulates Neil on his upcoming appointment and asks about the size and growth of the ALM business, spearheaded by Codebeamer. Neil and Kristian provide some insight on the growth and potential impact of Codebeamer on the company's ARR.

The speaker is discussing the growth of their company and specifically the success of their Codebeamer product. They have seen a lot of growth in the West Coast and are now seeing similar growth on the East Coast. They have recently won a large deal with a European auto maker and have already received an add-on order from the same customer. This is leading to excitement and high dollar value opportunities. The Codebeamer product is seen as a strategic high ground and the company expects to pass $100 million in annual recurring revenue this year. This includes both the Codebeamer product and their previous integrity product.

Jim Heppelmann, CEO of PTC, thanks investors for their support and announces his retirement. He introduces Neil Barua as his successor and expresses confidence in him. The PTC team will be participating in investor conferences in the coming weeks, and two bus tours will be visiting the Boston headquarters.

The paragraph encourages readers to contact JPMorgan or Piper Sandler if they are interested. The team expresses gratitude and looks forward to interacting with them. The operator then concludes the call and thanks everyone for joining, allowing them to disconnect.

This summary was generated with AI and may contain some inaccuracies.